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Respondent determined a deficiency of $12,575 in
petitioner’s Federal income tax for 2001. The sole issue for
decision is whether $54,000 of a $90,000 payment received by
petitioner from her former employer during 2001 is excludable
from gross income under section 104(a)(2).2
Some of the facts were stipulated. Those facts, with the
annexed exhibits, are so found and are incorporated herein by
reference. At the time the petition was filed, petitioner was a
legal resident of Birmingham, Alabama.
Petitioner became an employee of Regions Bank (Regions) in
1996. Her employment with Regions was mutually terminated in
November 2001 pursuant to a Settlement Agreement and Release
(Agreement) in which she received the monetary settlement that is
the subject of this litigation.
Petitioner was hired as a money transfer clerk, level II, by
Regions in July 1996 earning $8.75 per hour. Petitioner had
previously worked for several banks in the area, and, when she
left one bank to join Regions, the previous employer listed her
2Petitioner accepted a $90,000 settlement, and $36,000 of
that amount was paid directly to her attorney for attorney’s
fees. In the notice of deficiency, respondent did not determine
that the $36,000 constituted gross income. In Commissioner v.
Banks, 543 U.S. 426 (2005), the Supreme Court held that
attorney’s fees in a settlement recovery that is excludable from
income under sec. 104 constitute gross income. The attorney’s
fees are deductible as an itemized deduction. Respondent did not
move to increase the income determination to reflect the recent
decision; therefore, the only issue is whether the $54,000 paid
directly to petitioner is taxable.
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