Bent v. Comm'r of Internal Revenue, Docket No. 11963-80.

• Citation: 87 T.C. 236,87 T.C. No. 15
• Decision Date: 28 July 1986
• Docket Number: Docket No. 11963-80.
• Parties: JAMES EDWARD BENT, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: United States Tax Court

87 T.C. 236

87 T.C. No. 15

JAMES EDWARD BENT, Petitioner

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 11963-80.

United States Tax Court

Filed July 28, 1986.

After petitioner, a teacher at a public high school, criticized the school administration, the local school board decided not to rehire him. Petitioner sued the school board in a State court, alleging contract violations and numerous violations of 42 U.S.C. section 1983. In deciding only the liability issue, the State court concluded that petitioner's right to freedom of speech had been abridged, in violation of 42 U.S.C. section 1983; the State court rejected the contract claim and the other 42 U.S.C. section 1983 claims. Thereafter, the parties reached a settlement and petitioner received a $24,000 settlement payment, of which $8,000 was paid for legal fees.

HELD: (1) The settlement payment was made on the basis of the State court's decision that petitioner's First Amendment right to freedom of speech had been abridged, and that petitioner was entitled to redress under 42 U.S.C. section 1983. Determining the ‘intent of the payor‘ in this situation is unnecessary.

(2) Damages received on account of a claim under 42 U.S.C. section 1983 are received on account of personal injuries and so are excludable from income. Sec. 104(a)(2), I.R.C. 1954; sec. 1.104-1(c), Income Tax Regs.

(3) The amount paid for legal fees to pursue such a claim is not deductible. Sec. 265(1), I.R.C. 1954. James Edward Bent, pro se.

Joellyn R. Cattell, for the respondent.

CHABOT, JUDGE:

Respondent determined a deficiency in Federal individual income tax against petitioner for 1977 in the amount of $5,402.38. After concessions by respondent, the issues for decision are as follows:

(1) Whether a $24,000 settlement payment to petitioner from Marshallton-McKean School District, in settlement of litigation, is excludable from gross income under section 104(a)(2); ¹ and

(2) Whether petitioner is entitled to a deduction for the amount paid as legal fees, if the settlement payment is excludable.

FINDINGS OF FACT

Some of the facts have been stipulated; the stipulations and the stipulated exhibits are incorporated herein by this reference.

When the petition was filed in the instant case, petitioner resided in Newark, Delaware.

Petitioner was hired by the Board of Education (hereinafter sometimes referred to as ‘the Board‘) of the Marshallton-McKean School District (hereinafter sometimes referred to as ‘the District‘) as a secondary school teacher, beginning in September 1970. Petitioner taught in the area of Industrial Arts—Electronics Technology at McKean High School (hereinafter sometimes referred to as ‘McKean‘). At this time, petitioner was 46 years old and, with the exception of a few months during the summer of 1970, he had never taught in public schools. Petitioner has a degree in biology and spent the majority of the l950's and l960's employed in the field of electronics, including overseas assignments. Although petitioner did not have an education degree, the Board believed that, with his background and experience in the electronics industry, he was well- qualified to teach an electronics course at McKean. Petitioner's practical approach to the subject matter was consistent with the new teaching approach that was being experimented with at McKean.

For the first two school years, petitioner performed his duties to the apparent satisfaction of his superiors. In particular, petitioner was evaluated twice during each of these two school years; with the exception of certain comments about the lack of orderliness in his laboratory, his occasional inattention to detail and school procedures, and his tendency to use ‘rough‘ or ‘raw‘ language, petitioner's evaluations indicated satisfactory performance.

In addition to his duties as a high school teacher, petitioner was also active in the Marshallton-McKean Education Association (hereinafter sometimes referred to as ‘the Association‘), the collective bargaining representative for the teaching personnel in the District. In the 1972-1973 school year, petitioner held the position of building representative; teacher complaints on various matters were channeled to the administration through him.

The approach to education at McKean was thought to be unsuccessful; beginning with the 1972-1973 school year, two new administrators were hired at McKean.

On November 2, 1972, petitioner attended an open meeting of the Board. Without the approval of the Association, petitioner demanded the floor, and argued on a then-existing issue of whether the school custodians should be given the day off on election day. The Association was dealing with this matter through other individuals; petitioner acted apparently outside his scope of authority as well as his area of concern. His conduct was distasteful to some members of the Board and was not well received by the Association. As a result, petitioner had misgivings about the security of his teaching position and he requested an evaluation of his progress as a teacher.

One of the new McKean administrators performed the evaluation on December 5, 1972. He noted that petitioner was ‘very direct and occasionally outspoken‘ and that while his sincerity was unquestionable, his method was subject to being misunderstood. The administrator concluded that petitioner would be recommended for reemployment the following year even though he would still have to undergo one final evaluation. Thereafter, in January 1973, petitioner attended an evening meeting of science teachers from several different schools; the other new McKean administrator also attended. Petitioner had admittedly been drinking before he attended this out-of-school meeting. During the meeting, petitioner presented his views on how teaching should be accomplished. His remarks were directly critical of a computer education program instituted by the McKean administrator who attended this meeting. This administrator was personally offended by these remarks, as well as by other remarks which he considered unduly critical of the McKean administration.

On February 28, 1973, petitioner was given his final evaluation, this time by the administrator who had attended the science teachers meeting. This administrator stated that petitioner ‘displays unprofessional behavior by consistently downgrading the school, the staff, and the administration‘. This administrator concluded that petitioner should not be recommended for reemployment because ‘he does not exhibit the degree of professionalism expected of a professional educator * * *.‘

When petitioner was informed of the contents of the evaluation, he made sarcastic remarks to a McKean administrator in the presence of other school personnel. Petitioner threatened legal action and set upon a course of late evening telephone calls to members of the Board and to members of the Association.

Subsequently, petitioner disclosed that he had secretly recorded telephone conversations with a McKean administrator and with the District's superintendent. On April 19, 1973, the Board voted to terminate petitioner's employment and not to offer him a contract for the next school year. On May 3, 1973, the District's superintendent sent a letter to petitioner stating the reasons for the termination of petitioner's employment. The reasons given were those set forth in the February 28 evaluation and the fact that petitioner secretly recorded telephone calls.

Thereafter, petitioner asked for a hearing before the Board, but this was rejected. His employment contract with the District expired on June 30, 1973. Petitioner never was granted tenure by the District. In August 1973, the Board changed its position and decided to give petitioner a hearing. However, by this time, petitioner had accepted a teacher-training job at Temple University, beginning in September 1973, and his counsel was unavailable for a hearing. The Board never held a hearing for petitioner.

In September 1973, petitioner sued the Board, its members, and its secretary in the Court of Chancery of the State of Delaware in and for New Castle County (hereinafter sometimes referred to as ‘the Chancery Court ‘). The complaint set forth the following contentions:

9. The aforesaid actions of defendants have violated plaintiff's rights as follows:

a. Defendants have breached the said collective bargaining agreement in refusing to process plaintiff's grievance, in refusing to rehire plaintiff without just cause in violation of Article IIID, and in refusing to make specific suggestions for improvement, and refusing to make any effort to help the plaintiff correct his weaknesses and strengthen his performance in violation of Articles XIE and XIF.

b. The refusal to grant plaintiff a prompt hearing violated plaintiff's right to procedural due process, to which he is entitled under the Constitution of the United States and 42 U.S.C. section 1983.

c. The arbitrary refusal to rehire the plaintiff violated his rights to substantive due process and free speech, in violation of the Constitution of the United States and 42 U.S.C. section 1983.

d. The defendants' action imposed a stigma upon plaintiff which has foreclosed his opportunity to obtain other employment in education, in violation of the Constitution of the United States and 42 U.S.C. section 1983.

e. The action of defendants deprived the plaintiff of property, in that consistent with the practice of defendants, plaintiff had an objective expectancy of reemployment and a consequent right to a hearing before being non-renewed, pursuant to the Constitution of the United States and 42 U.S.C. section 1983.

10. As a result of the foregoing actions of defendants, all of which were taken in bad faith, plaintiff has been deprived of his employment in the Marshallton-McKean School District for 1973-74 and has been otherwise damaged.

In his complaint, petitioner asked the Chancery Court to ‘reinstate him and order the...