In order to resolve inconsistent conclusions between the courts of appeals as to the taxability of damages received under the Age Discrimination in Employment Act of 1967 (ADEA), the United States Supreme Court granted certiorari in Commissioner v. Schleier. After receiving damages in an ADEA settlement with United Airlines, Inc., Erich Schleier included as gross income the back pay portion of the settlement, but excluded the portion of the settlement attributed to liquidated damages on his 1986 federal income tax return. The Tax Commissioner issued a deficiency notice, claiming Schleier should have included the liquidated damages as gross income. Schleier responded by initiating proceedings in Tax Court claiming that he had properly excluded the liquidated damages. In addition, Schleier sought a refund of the taxes paid on the back pay portion of the settlement. The Tax Court agreed with Schleier, holding that the entire settlement satisfied the requirement of "damages received ... on account of personal injury or sickness" within the meaning of section 104(a)(2) of the Internal Revenue Code and was, therefore, excludable from gross income. The Fifth Circuit Court of Appeals affirmed. The United States Supreme Court reversed the Tax Court and the court of appeals, holding that recovery under ADEA was not excludable from gross income.
T. Mark Sandifer, Note, No Exclusion for ADEA Claims Under I.R.C. § 104(a)(2): An Analysis of Commissioner v. Schleier, 47 Mercer L. Rev. 637 (1996).