-5-
settlement provided for, among other specified items of
consideration, the termination of petitioner’s employment, a
mutual omnibus release encompassing any and all litigation-
related claims between the parties, and the remuneration by the
District of the following compensatory sums: (i) $15,904.33,
allocated as severance and accrued leave; (ii) $103,250,
designated as petitioner’s “claims and out-of-pocket expenses”;
and (iii) $31,750, earmarked as petitioner’s counsel fees and
costs. Payment of petitioner’s counsel fees and costs was
remitted directly to petitioner’s attorneys, in accordance with
the settlement.
The settlement, in a provision accompanying the enumeration
of the compensatory payments, contains the following
characterization of the respective $103,250 and $31,750 amounts
(cumulating $135,000, the disputed settlement amount) as:
compensatory damages pursuant to section
104(a)(2) and for out-of-pocket expenses
only; * * * [the disputed settlement amount]
does not constitute wages, and shall be
considered as non-taxable to the fullest
extent permitted by law. The parties
understand and agree that no W-2 form shall
issue from the District of Columbia with
respect to * * * [the disputed settlement
amount].
Relying solely on such representation set forth in the
settlement, petitioners did not include (and did not provide
supplemental disclosure of) the disputed settlement amount in
their 2001 gross income. Of the aggregate settlement proceeds,
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Last modified: May 25, 2011