Vernadean A. Pates - Page 5

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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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