912 F.2d 145 (6th Cir. 1990), 89-2209, Pistillo v. C.I.R.

Docket Nº:89-2209.
Citation:912 F.2d 145
Party Name:, 66 A.F.T.R.2d 90-5448, Carmen PISTILLO, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
Case Date:August 24, 1990
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit

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912 F.2d 145 (6th Cir. 1990)

, 66 A.F.T.R.2d 90-5448,

Carmen PISTILLO, Petitioner-Appellant,



No. 89-2209.

United States Court of Appeals, Sixth Circuit

August 24, 1990

Argued June 11, 1990.

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Thomas I. Hausman (argued), Adrienne C. Lalak, Kahn, Kleinman, Yanowitz & Arnson, Cleveland, Ohio, for petitioner-appellant.

Peter K. Scott, I.R.S., Gary R. Allen, Acting Chief, Bruce R. Ellisen (argued), Ann Belanger Durney, U.S. Dept. of Justice, Appellate Section Tax Div., Washington, D.C., for respondent-appellee.

Before KEITH and JONES, Circuit Judges, and ENGEL, Senior Circuit Judge.

KEITH, Circuit Judge:

On April 30, 1982, petitioner Carmen Pistillo ("Pistillo") received $58,000 from his former employer, pursuant to the settlement of an age discrimination lawsuit. See Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. Secs. 621-634. This appeal requires us to decide whether the United States Tax Court ("the Tax Court") properly determined that Pistillo's settlement award is taxable. Because we conclude that Pistillo's settlement award is excludable from his taxable income pursuant to Sec. 104(a)(2) of the Internal Revenue Code ("IRC"), 26 U.S.C. Sec. 104(a)(2), we REVERSE the order of the Tax Court.


For over ten years, Pistillo was employed by the Cleveland Tool & Supply Company ("Cleveland Tool") as a commissioned salesman. A Cleveland Tool managerial employee, Harry Parks, often made disparaging remarks about Pistillo's work and reputation, including statements that he was "old"; had "gray hair"; and was unable to relate to his younger clients. On April 6, 1979, when Pistillo was 57 years old, Cleveland Tool terminated his employment and replaced him with a younger employee. Pistillo has remained unemployed.

After the termination of his employment by Cleveland Tool, Pistillo concluded that he had been a victim of age discrimination. On July 27, 1979, Pistillo filed a timely notice of his intent to sue Cleveland Tool with the Wage and Hour Division of the United States Department of Labor. See ADEA, 29 U.S.C. Sec. 626(d). On June 5, 1980, the Equal Employment Opportunity Commission ("the E.E.O.C.") notified Pistillo that its efforts to resolve his dispute with Cleveland Tool through informal methods of conciliation, conference and persuasion had been unsuccessful. See id. The E.E.O.C. advised Pistillo of his right to institute an independent civil action against Cleveland Tool. See ADEA, 29 U.S.C. Sec. 626(c). 1

In October 1980, Pistillo filed a complaint against Cleveland Tool in the United States District Court for the Northern District of Ohio. Initiating his suit in equity and at law, Pistillo alleged that the true reason for the termination of his employment was his age, in violation of the ADEA, 29 U.S.C. Secs. 621-634 2; 42 U.S.C. Secs. 1981 and 1988; and the fifth and fourteenth amendments to the United States Constitution. Pistillo sought an order: (1) declaring that Cleveland Tool had discriminated against him on the basis of his age; (2) granting him a

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preliminary and permanent injunction enjoining Cleveland Tool from abridging his rights; (3) requiring Cleveland Tool to reinstate him to the position he had held on April 6, 1979, and to pay him all wages, including overtime, that he would have received in the normal course of his employment from April 6, 1979 to the date of his reinstatement; and (4) granting him reasonable attorneys fees.

Pistillo's age discrimination suit was tried before a jury. The district court instructed the jury that if it found that Cleveland Tool had discriminated against Pistillo on the basis of his age, it could award compensation for back pay, including the amount of sales commissions Pistillo did not receive because of his discharge. The district court also instructed the jury that it could award Pistillo liquidated damages and compensatory damages. The district court further instructed the jury that any award of damages to Pistillo would not be taxed; therefore, the jury should not consider taxes in awarding damages.

On March 13, 1981, the jury found for Pistillo and awarded him $55,000 in compensatory damages. The district court awarded Pistillo attorneys fees in the amount of $22,432.83. On August 6, 1981, the judgement was filed. Cleveland Tool appealed to this court on January 13, 1982.

While the appeal was pending, Cleveland Tool initiated settlement negotiations with Pistillo. On April 30, 1982, the parties settled the litigation by executing a document entitled "Release and Settlement." 3 On the same day, Cleveland Tool paid Pistillo $81,562.58, which was allocated as follows: $58,000 was paid to Pistillo; $22,706.18 was paid for his attorney fees; and $856.40 was paid for court reporter fees. In accordance with the release and settlement, Cleveland Tool dismissed its appeal.

Pistillo did not include the $58,000 received by him from Cleveland Tool in his gross income for 1982. 4 Pistillo reasoned that the settlement proceeds were excludable from his gross income under Sec. 104(a)(2), which excludes from gross income damages received on account of personal injuries. 26 U.S.C. Sec. 104(a)(2). On November 6, 1986, the Commissioner of Internal Revenue ("the Commissioner") issued a Notice of Deficiency to Pistillo. In the notice, the Commissioner stated that Pistillo had a tax deficiency of $22,131.90. The Commissioner explained that Pistillo should have included the $58,000 settlement award in his gross income for the 1982 taxable year because the suit was brought to secure lost wages, as opposed to damages for personal injuries.

On January 29, 1987...

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