Taxpayer Finds That Taxes Weren’t Certain but Legal Expenses Were

Frank Rickel won his battle with the Internal Revenue Service--but he lost more than he was fighting over.

Rickel says he spent $28,000 more in legal fees than if he had not fought the IRS.

For nearly five years Rickel battled the IRS over an age discrimination settlement the government wanted to tax.

Rickel fought all the way to the U.S. 3rd Circuit Court of Appeals in Philadelphia, which in April ruled in his favor. The court ruled that an older worker who wins damages from his employer because of discrimination does not have to pay taxes on the award.

But Rickel estimates that the battle over $60,000 in taxes cost him $88,000 in legal fees.

“These people at the IRS kept telling me I couldn’t afford to fight them,” Rickel said. “They were right.”

Rickel was fired as general sales manager from the Malsbary Manufacturing Co. in Uniontown in 1979 at age 59. He said he was told by his boss the company wanted a younger man in the job.

Rickel sued Malsbary and its parent, Carlisle Corp., for age discrimination in U.S. District Court in Pittsburgh. Malsbary offered Rickel a $180,000 settlement as a jury was deliberating in 1983, and he accepted.

“I figured I probably could’ve gotten more,” Rickel said. “But the company probably would have appealed it on and on.”

Rickel, who holds a master’s degree in economics from Kansas State University, said the way he read IRS regulations, court settlements for damages were excluded from federal income taxes. He did not report an $80,000 payment from Malsbary in 1983 or a $25,000 payment in 1984.

But the IRS contended payments made in age discrimination cases were taxable.

A tax court ruled that one-half of the money paid to Rickel was taxable and the rest was excluded. The federal appeals court reversed the tax court ruling and said the entire payment was exempt from federal taxes.

But the court denied Rickel’s request that the IRS pay his legal costs.

“What kind of justice is that?” Rickel asked.