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In 1998, petitioner filed a race discrimination action
against Regions with the U.S. District Court for the Northern
District of Alabama, pursuant to title VII of the Civil Rights
Act of 1964, as amended. Petitioner alleged that co-workers whom
she felt were less qualified were receiving jobs and promotions
that she had applied for. Petitioner asserted this was due
solely to her race, African-American.
Petitioner continued working for Regions while her suit was
pending. In November 2001, petitioner and Regions agreed to
mediation, which resulted in a settlement wherein Regions agreed
to pay petitioner $90,000 in return for the dismissal of the
title VII action and her resignation from Regions. Petitioner
received $54,000, and her attorney received $36,000 in fees.
Both parties agreed to keep the terms of the settlement
confidential. Petitioner resigned her employment, and the action
was dismissed by joint stipulation on December 4, 2001.
Petitioner filed her 2001 Federal income tax return timely
but did not include the $54,000 as income on her return. The
sole issue before the Court is whether petitioner must include,
as gross income, the $54,000 settlement she received from
Regions. See supra note 2.
Section 104(a)(2) excludes from gross income “the amount of
any damages (other than punitive damages) received (whether by
suit or agreement and whether as lump sums or as periodic
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