Tax Status of Disability Pension Sparks Class Action Suit in Knoxville
A retired Knoxville Fire Department captain has filed a class action lawsuit alleging that his disability pension had been wrongfully designated as taxable income.
Derrell Frye filed suit on behalf of all similarly situated Knoxville firefighters and police officers whose line-of-duty disability pension payments have been taxed. The Knoxville News Sentinel estimates the number at between 350 and 500 plaintiffs, although the attorney for the pension board, Bud Gilbert, says less than 100 people are effected.
Named as defendants in the action are the city of Knoxville, the Knoxville Pension Board and the City Employees’ Pension Fund. The suit claims “IRS tax forms were improperly issued indicating that their benefits were taxable” and seeks “damages resulting from the payment of federal income taxes on benefits that were exempt from such taxation”.
Gilbert was quoted as saying “this situation is much more complex than it appears in the lawsuit” and “is affected by tax codes, changes in pension plans over the years and amendments to the City Charter.”
Oddly enough the suit was filed in state court despite the obvious Federal income tax connection that would seem to warrant it going to Federal court. The suit was filed last Wednesday.
Hi Curt, your site, your articles, your whole forum is professional and informative. I believe a lot of these topics as far as “disability” and “presumed disability” are all dependent on the language in every different contract as set up by municipalities and union personnel. Unfortunately sometimes even the language one might interpret as a solid case for disability remain a grey area, such as what I’ve seen in presumption of disability clauses. Keep up the good work. I would appreciate any feedback on my facebook page. Thanks Curt.
Thanks Paul
I am not sure what this issue is in the Knoxville case – its not clear from the news reports. It appears the allegation is that city/pension system didn’t take the necessary steps to meet the IRS requirements which ended up costing the pensioners. Like you say – the language in these cases can be critical.