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Frank E. v. Commissioner of Internal Revenue

argued: January 22, 1990.

FRANK E. & MILDRED E. RICKEL, APPELLANTS
v.
COMMISSIONER OF INTERNAL REVENUE



On Appeal from the United States Tax Court, No. 22936-87.

Sloviter, Hutchinson and Cowen Circuit Judges.

Author: Cowen

Opinion OF THE COURT

COWEN, Circuit Judge.

The appellant Frank E. Rickel ("the taxpayer")*fn1 received $80,000 from his former employer in 1983 and $25,000 in 1984 pursuant to a settlement of his Age Discrimination in Employment Act ("ADEA") lawsuit. This appeal requires us to decide whether the United States Tax Court properly determined that one-half of this settlement represented taxable income. Because we conclude that the entire settlement amount is excludable under 26 U.S.C. § 104(a)(2)*fn2, we will reverse the order of the Tax Court.

I.

The relevant facts of this case are not contested. The taxpayer was employed by Malsbary Manufacturing Company ("Malsbary"), Uniontown, Pennsylvania, as a general sales manager. In March 1979, when the taxpayer was 56 years old, the position of president opened up at the company. Despite the taxpayer's qualifications and past suggestions from company officials that the taxpayer would be considered for the post, the company hired a much younger individual as president.

Subsequently, the new president told the taxpayer that he wanted someone younger for the position of general sales manager. The taxpayer was thereafter relieved of his position in favor of a 37 year old individual, placed on partial pay, and eventually discharged on December 31, 1979.

After receiving a right to sue letter from the EEOC, the taxpayer brought suit in federal court against Malsbary and its parent, Carlisle Corporation ("Carlisle"), alleging a violation of the ADEA, 29 U.S.C. §§ 621-634 (1982). The taxpayer's amended complaint contained the following prayers for relief:

A. Order defendants jointly and/or severally to employ the plaintiff as President of Malsbary; or in the alternative to reinstate plaintiff to his former or a comparable position;

B. Order the defendants jointly and/or severally to pay back wages, benefits and other compensations found by the Court to be due plaintiff, together with interest thereon from the date when such amount became due;

C. Grant a judgment requiring defendants jointly and/or severally to pay appropriate back wages and an equal sum as liquidated damages, to plaintiff who has been adversely affected by the unlawful employment practices described herein;

D. Award counsel for plaintiff reasonable attorney's fees and expenses;

E. Award any further relief which is appropriate and proper under the circumstances.

App. at 58-59.

The taxpayer's action was tried before a jury in a bifurcated trial. The jury first heard evidence on the issue of liability. After the testimony, four interrogatories were submitted to the jury for their consideration:

(1) Was plaintiff . . . qualified in April 1979 for the position of President of Malsbary . . .?

(2) Was age a determinative factor in the decision not to promote the plaintiff?

(3) Was plaintiff . . . qualified in August 1979 for the position of General Sales Manager of Malsbary . . . ?

(4) Was age a determinative factor in the decision to discharge the plaintiff from his job ...


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