Hughes A. Bagley and Marilyn B. Bagley v. Commissioner of Internal Revenue

RICHARD S. ARNOLD, Chief Judge.

In August 1987, Hughes Bagley settled an eight-year-old lawsuit against Iowa Beef Pro cessors, Inc. (“IBP”), for $1.5 million. In their tax return for that year, Mr. Bagley and his wife, Marilyn Bagley, excluded the entire settlement amount from their taxable income. The Commissioner determined that $1,305,000 of the $1.5 million was not excludable and asserted a deficiency in the Bagleys’ 1987 income tax, a determination which the Bagleys contested in the Tax Court. The Tax Court 1 held that $500,000 of the settlement was not excludable, Bagley v. Commissioner,…