Pistillo v. C.I.R.
| Decision Date | 24 August 1990 |
| Docket Number | No. 89-2209,89-2209 |
| Citation | 912 F.2d 145 |
| Parties | 53 Fair Empl.Prac.Cas. 1219, 54 Empl. Prac. Dec. P 40,215, 66 A.F.T.R.2d 90-5448, 90-2 USTC P 50,469 Carmen PISTILLO, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
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.
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 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, Pistillo petitioned the Tax Court seeking a redetermination of the deficiency. 5 On July 11, 1989, the Tax Court issued its opinion, adopted the position advanced by the Commissioner, and concluded that Pistillo's settlement was taxable income. See Pistillo v. Commissioner, 57 T.C.M. (CCH) 874, 881 (1989). The Tax Court entered its order and decision on July 26, 1989. Pistillo filed a notice of appeal on October 13, 1989.
On appeal, Pistillo argues that the Tax Court erred in holding that his $58,000 settlement award was not excludable from his taxable income under Sec. 104(a)(2). In response, the Commissioner contends that the Tax Court correctly concluded that Pistillo's settlement award: (1) represented compensatory damages awarded to him under the ADEA; (2) redressed his claim for lost wages resulting from the termination of his employment; (3) did not reflect a tort claim for personal injuries; and (4) did not warrant exclusion from his taxable income pursuant to Sec. 104(a)(2). Relying substantially upon our holding in Threlkeld v. Commissioner, 87 T.C. 1294 (1986) aff'd, 848 F.2d 81 (6th Cir.1988), and the Third Circuit's recent opinion in Rickel v. Commissioner, 92 T.C. 510 (1989) aff'd in part and rev'd in part, 900 F.2d 655 (3rd Cir.1990), we conclude that under Sec. 104(a)(2), the $58,000 paid by Cleveland Tool to Pistillo in settlement of his age discrimination suit was excludable from his taxable income as damages received on account of personal injuries.
The IRC states: "[e]xcept as otherwise provided ..., gross income means all income from whatever source derived...." 26 U.S.C. Sec. 61(a). All accessions to wealth are presumed to be gross income, unless the taxpayer can demonstrate that the accessions qualify for specific exclusions created by the IRC. See Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 430, 75 S.Ct. 473, 476, 99 L.Ed. 483 (1955).
Section 104(a)(2), the exclusion at issue here, provides that "gross income does not include ... the amount of any damages received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal injuries or sickness...." For purposes of Sec. 104(a)(2), several courts have explained that the meaning of "personal injuries" encompasses both physical and nonphysical injuries. See Rickel, 900 F.2d at 658; Bent v. Commissioner, 835 F.2d 67, 70 (3d Cir.1987); Roemer v. Commissioner, 716 F.2d 693, 697 (9th Cir.1983); Threlkeld, 87 T.C. at 1297. As defined by the Treasury regulations, a claim for an exclusion based on a personal injury award must assert violations of tort or tort-type rights. 26 C.F.R. Sec. 1.104-1(c). See Byrne v. Commissioner, 883 F.2d 211, 214 (3d Cir.1989). The essential element, however, of an "exclusion under section 104(a)(2) is that the income involved must derive from some sort of tort claim against the payor." Glynn v. Commissioner, 76 T.C. 116, 119 (1981).
In Threlkeld v. Commissioner, 87 T.C. 1294 (1986), aff'd, 848 F.2d 81 (6th Cir.1988), the Tax Court held that a portion of a malicious prosecution settlement was attributable to injury to the taxpayer's professional reputation; constituted damages received on account of personal injuries; and thus, was excludable from the taxpayer's gross income. See 87 T.C. at 1308. With a 15-1 vote, the Tax Court established the prevailing test to determine whether a specific damage award qualifies for the exclusion:
Section 104(a)(2) excludes from income amounts received as damages on account of personal injuries. Therefore, whether the damages received are paid on account of "personal injuries" should be the beginning and end of the inquiry. To determine whether the injury complained of is personal, we must look to the origin and character of the claim ..., and not to the consequences that result from the inquiry.
. . . . .
Exclusion under section 104 will be appropriate if compensatory damages are received on account of any invasion of the rights an individual is granted by virtue of being a person in the sight of the law.
Id. at 1299, 1308 (citations omitted) (emphasis added).
Affirming the Tax Court in Threlkeld, we held that the "nonpersonal consequences of a personal injury, such as a...
To continue reading
Request your trial
-
Downey v. Comm'r of Internal Revenue, Docket No. 11120-89.
...and revd. in part900 F.2d 655 (3d Cir. 1990), and we overrule our decision in Pistillo v. Commissioner, T.C. Memo. 1989-329, revd. 912 F.2d 145 (6th Cir. 1990). HELD FURTHER, nonliquidated damages, or back pay, under the ADEA compensate the victim for pecuniary losses arising from age discr......
-
Kovacs v. Comm'r of Internal Revenue
...Rickel v. Commissioner, 900 F.2d 655, 661–663 (3d Cir.1990), affg. in part and revg. in part 92 T.C. 510 (1989), and Pistillo v. Commissioner, 912 F.2d 145 (6th Cir.1990), revg. T.C.Memo. 1989–329, and to which we acceded in Downey v. Commissioner, supra at 168, this is an appropriate occas......
-
Schmitz v. C.I.R.
...104(a)(2) and 26 C.F.R. Sec. 1.104-1(c). See Redfield v. Insurance Co. of North America, 940 F.2d 542 (9th Cir.1991); Pistillo v. Commissioner, 912 F.2d 145 (6th Cir.1990); Rickel v. Commissioner, 900 F.2d 655 (3d Cir.1990); Downey v. Commissioner, 97 T.C. 150, 1991 WL 140900 (1991). Howeve......
-
Sparrow v. C.I.R.
...awarded under the Age Discrimination in Employment Act (ADEA), 29 U.S.C. §§ 621-634 (1988), is excludable. See also Pistillo v. Commissioner, 912 F.2d 145 (6th Cir.1990). In our view, these cases reflect a misapprehension of the inquiry required under section In Burke, the Sixth Circuit rel......
-
Recent developments concerning the taxation of damages under section 104(a) (2) of the Internal Revenue Code.
...(6th Cir. 1988)). (47) See id. at 339 (citing Redfield v. Insurance Co. of N. Am., 940 F.2d 542 (9th Cir. 1991); Pistillo v. Commissioner, 912 F.2d 145 (6th Cir. 1990); Rickel v. Commissioner, 900 F.2d 655 (3d Cir. (48) See id. at 340-41. (49) Id. at 343. (50) See id. at 344. (51) See id. (......
-
Back pay awarded in employment discrimination dispute is taxable.
...9th Cir., at 83-2 USTC 88,190. (21) Threlkeld, note 19, TC, at 1299. (22) See, e.g., Carmen Pistillo, TC Memo 1989-329, rev'd and rem'd, 912 F2d 145 (6th Cir. 1990)(66 AFTR2d 90-5448, 90-2 USTC [paragraph] 50,469); Frank E. Rickel, 92 TC 510 (1989), rev'd in part, 900 F2d 655 (3d Cir. 1990)......