88 T.C. 834 (1987), 6510-78, Metzger v. C.I.R.
|Citation:||88 T.C. 834|
|Opinion Judge:||CHABOT, JUDGE:|
|Party Name:||ANA MARIA METZGER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent|
|Attorney:||Ana Maria Metzger, pro se. Eugene J. Wien, for the respondent.|
|Case Date:||April 09, 1987|
|Court:||United States Tax Court|
Petitioner, an associate professor at college M, was not recommended for a tenured position at M; thus, her teaching position at M terminated on expiration of her employment contract. Petitioner brought four proceedings against M and certain college officials in various State and Federal forums, alleging that M's decision to deny her tenure constituted a breach of contract and a violation of her constitutional and statutory rights to be free from discrimination on account of sex and national origin. She asked for awards of back pay, reinstatement, a grant of tenure, damages, and declaratory and injunctive relief. Petitioner and M settled the litigation without M admitting its liability. The settlement agreement designated half of the $75,000 settlement as wages. Petitioner
HELD: (1) Petitioner may exclude half the settlement from gross income because at least that much was received in satisfaction of her personal injury claims (i.e., violation of her rights to be free from discrimination on account of sex and national origin). Sec. 104(a)(2), I.R.C. 1954.
(2) Petitioner may not deduct that portion of her legal fee expense that is allocable to the portion of the settlement that is excludable from income. Sec. 265(1), I.R.C. 1954.
Respondent determined a deficiency in Federal individual income tax against petitioner for 1975 in the amount of $1,745. By amendment to answer, respondent asserts an increased deficiency in the amount of $18,196.28, for a total deficiency in the amount of $19,941.28.
The issues for decision are as follows:
(1) Whether one-half of the $75,000 payment to petitioner from Muhlenberg College in settlement of litigation is excludable from gross income  under section 104(a)(2),
(2) Whether petitioner is entitled to deduct all of the amount she paid as a legal fee if a portion of the settlement payment referred to in issue (1) is excludable.
FINDINGS OF FACT
None of the facts have been stipulated.
When the petition was filed in the instant case, petitioner's legal residence was in Allentown, Pennsylvania.
Petitioner, a woman of Cuban national origin, is a naturalized citizen of the United States. She received a Doctor of Education degree from the University of Havana.
For the academic year 1961-1962, petitioner taught full-time at the Instituto Pedagogico Experimental de Barquisimeto in Barquisimeto, Venezuela, an institution of higher education that grants baccalaureate degrees. Sometime thereafter, about May 19, 1966, Muhlenberg College (hereinafter sometimes referred to as ‘ the College‘ ) hired petitioner as an assistant professor of Spanish for the 1966-1967 academic year. The College is a private nonprofit corporation organized under Pennsylvania law, with principal administrative offices and places of instruction located in Allentown, Pennsylvania. The College reappointed petitioner as an assistant professor of Spanish for three additional academic years, extending her employment through August 31, 1970. About December 15, 1969, the College promoted petitioner to the rank of associate professor of Spanish. About February 27, 1970, petitioner's contract was extended for an additional two academic years through August 31, 1972.
While at the College, petitioner taught courses in elementary and intermediate Spanish, Spanish Conversation and Composition, 17th Century Spanish Literature, 18th and 19th Century Spanish Literature, Generation of 1898 and 20th Century Spanish Literature, and Methods of Teaching Foreign Languages in Secondary Schools.
Each contract of employment between the College and petitioner was subject to the provisions of the College's Charter, By-Laws, and Faculty Handbook (hereinafter sometimes referred to as ‘ the Handbook‘ ). The Handbook provides as follows:
The College operates under a charter granted it by the Commonwealth of Pennsylvania and under bylaws adopted by the Board of Trustees.
Publications entitled The Charter-The Bylaws and The Retirement Program are available for reference in the Library and in various administrative offices. Personal copies may be obtained from the Office of the Dean of the College. Part of what follows in this Handbook has been excerpted from these publications. (In case of any conflict between such official documents of the College and statements in this Handbook, the former are controlling.)
Academic tenure is a system whereby faculty appointments in an institution of higher education are continued generally until retirement. At the College, the normal tenure procedure is for the head of the candidate's department to make a recommendation to the Faculty Personnel Committee (hereinafter sometimes referred to as ‘ the Committee‘ ), which then makes a decision and recommendation to the president of the College. The president's decision is reviewed by the Board of Trustees which has final authority.  In practice, the recommendation of the Committee, an elected body of six tenured professors, is decisive. If a faculty member fails to achieve tenure after 7 years of continuous teaching, then his or her services are terminated.
With respect to the conditions for granting tenure, Article VII, section 4, of the College's By-Laws, dated July 21, 1970, provides as follows:
SECTION 4. Continuous tenure shall be granted only by action of the Board of Trustees upon the recommendation of the President. A faculty member shall obtain continuous tenure upon reappointment after seven years' full-time college or university teaching at the rank of Instructor, Assistant Professor or Associate Professor, at least four of which shall have been at the College. Not more than three of the total seven years shall be served at the rank of Instructor. No persons, however, shall teach at the College for more than nine years without obtaining continuous tenure. A member who joins the Faculty with the rank of Associate Professor or Professor, upon reappointment, after a probationary period of three years shall have continuous tenure. A member of the Faculty who is promoted to Professor, if he has served four years on the Faculty, shall have continuous tenure as of the effective date of such promotion.
Termination of limited appointments or continuous tenure shall be warranted for the following reasons:
b) Gross neglect of duty
d) Demonstrable financial exigencies on the part of the College.
e) The elimination or reduction of a department.
The Handbook provides that notice of nonreappointment shall be given ‘ in writing by the President of the College * * * at least twelve months before the expiration of an appointment after two or more years of employment at the College.‘
By memorandum dated October 15, 1971, the head of the foreign language department recommended to the dean of the College that petitioner be granted tenure. On December 15, 1971, however, the College orally advised petitioner that she had not been recommended for tenure. Thereafter, in a memorandum dated December 16, 1971, the head of the foreign language department reiterated his position to the dean of the College that petitioner be granted tenure. Notwithstanding the department head's recommendations, the College, by letter dated February 28, 1972, officially notified petitioner that she had not been recommended for tenure and that her employment with the College would terminate when her contract expired on August 31, 1972. By letter dated March 15, 1972, Morey (1) conceded that late notice of nonreappointment had been given to petitioner (in violation of the foregoing Handbook provision that notice of nonreappointment be issued 12 months before the expiration of an appointment), (2) offered to compensate petitioner for any damages suffered due to this breach of contract, (3) requested that petitioner seek other employment so as to mitigate her damages (noting that her loss could not be determined precisely until the expiration of her contract on August 31, 1972), and (4) offered to discuss with the board of trustees the possibility of offering petitioner a 1-year terminal contract with the understanding that tenure would not be secured.
By a letter dated April 26, 1972, petitioner demanded breach of contract damages from the College, claiming the following relief:
In addition to the damages for loss of salary for the academic year 1972-1973, [petitioner] is entitled to damages for loss of tenure. Since she was not terminated in accordance with [the College's] procedures and her
contract, she now has automatic tenure in accordance with the bylaws of the college as provided for in Article 7, Section 4 because the failure to terminate her employment constitutes reappointment after the seven years of college teaching including four at [the College].
[Petitioner] will be 43 years of age on September 27, 1972. Her current wages approximate $14,000.00 including fringe benefits. Her life expectancy on her 43rd birthday is 33 years. Mandatory retirement at [the College] is age 65 leaving a working life of 22 years. Her damages amount to $308,000.00 representing her salary for a period of 22 years. Ordinarily, this sum must be reduced to present worth but the 6% factor would be offset by the anticipated increase in the cost of living of 6% per year. In addition, she is claiming loss of tuition grants for her two children.
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