Academic journal article Journal of Accountancy

Is "Equitable Remedy" Settlement Excludable from Gross Income?

Academic journal article Journal of Accountancy

Is "Equitable Remedy" Settlement Excludable from Gross Income?

Article excerpt

Taxpayers are continually testing the legal definitions of "personal physical injuries" and "physical sickness." The Tax Court recently decided an "equitable remedy" settlement did not meet the criteria for the tax treatment afforded these conditions.

In 1985 William Kidd filed a lawsuit against the state of California, its personnel board and its fish and game department, asserting the state's affirmative action policy of "supplemental certification" violated his rights under the Equal Protection Clause of the 14th Amendment to the U. S. Constitution and the "merit" principle in the California constitution. Kidd had applied for positions with the fish and game department; it filled these positions, through a supplemental certification program, with individuals who had not performed as well as he had on competitive examinations. Kidd did not seek monetary damages; rather he sought to have the program stopped and employees hired under it dismissed.

While the lawsuit was pending in superior court, the state personnel board reexamined the supplemental certification program and concluded it was improper. The superior court dismissed Kidd's lawsuit. The court of appeals reversed and remanded that decision with instructions to "fashion an equitable remedy to redress the violation of plaintiff's constitutional and statutory rights." In 2000 Kidd received a $132,000 settlement from the state of California. …

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