279

CLARENCE WILLIAM SPEER AND SUSAN M. SPEER, 

PETITIONERS v. COMMISSIONER OF INTERNAL

REVENUE, RESPONDENT

Docket No. 581–12. Filed April 16, 2015. 

P–H, a retired Los Angeles Police Department detective, 

failed to report as gross income payments that, on his retirement, he received from the department cashing out his 

unused vacation time and sick leave (leave payments). Ps 

argue that some portions of P–H’s unused vacation time and 

sick leave accrued when he was on temporary disability leave 

from the department pursuant to sec. 4.177 of the Los Angeles 

Administrative Code, which, in part, provides that a temporarily disabled member of the Police Department shall receive 

as temporary disability compensation ‘‘an amount equal to his 

base salary’’. Ps argue that at least some portions of the leave 

payments are excludable from gross income under I.R.C. sec. 

104(a)(1) as amounts received under a workmen’s compensation act as compensation for personal injuries or sickness. 

Held: The leave payments were not received under a workmen’s compensation act as compensation for personal injuries 

or sickness and, therefore, no portion is excludable under 

I.R.C. sec. 104(a)(1). 

Clarence William Speer and Susan M. Speer, pro sese. 

Jonathan N. Kalinski, for respondent. 

HALPERN, Judge: Respondent determined deficiencies of 

$14,832 and $68,179 in petitioners’ 2008 and 2009 Federal 

income tax, respectively. The only issue remaining for deci-
280 144 UNITED STATES TAX COURT REPORTS (279) 

sion is whether petitioners may exclude from their 2009 

gross income as workmen’s compensation a lump-sum payment that petitioner husband (Mr. Speer) received on 

account of unused vacation time and sick leave. All other 

issues have been settled or are merely computational. 

Unless otherwise stated, all section references are to the 

Internal Revenue Code of 1986, as amended and in effect for 

2009. All dollar amounts and numbers of hours have been 

rounded to the nearest dollar or whole hour. 

FINDINGS OF FACT 

The parties have stipulated certain facts and the authenticity of certain documents. The facts stipulated are so found, 

and the documents stipulated are accepted as authentic. 

Petitioners resided in California when they filed the petition. 

In 2009, Mr. Speer retired from his job as a detective 

employed by the Los Angeles Police Department (LAPD). 

During his decades-long service to the LAPD, Mr. Speer was 

granted periods of temporary disability leave on account of 

duty-related injuries or sickness. The first of those periods 

was in 1982, and the last was in 2007. On his retirement 

from the LAPD in 2009, the City of Los Angeles (City) paid 

to Mr. Speer $30,773 for 541 hours of unused vacation time 

and $22,740 for 800 hours of unused sick leave (together, 

leave payments). The leave payments (totaling $53,513) were 

included in the amount of wages reported by the City to Mr. 

Speer on a 2009 Form W–2, Wage and Tax Statement. Petitioners made a joint return of income for 2009 on Form 1040, 

U.S. Individual Income Tax Return. They did not include the 

leave payments in the income that they reported. In an 

attachment to the Form 1040, petitioners explained that they 

were excluding the leave payments from income on the 

ground that they had been received under a workmen’s compensation act. They identified Cal. Lab. Code sec. 4850 (West 

2011) as a workmen’s compensation act. Cal. Lab. Code sec. 

4850 provides certain police officers, firefighters, sheriff’s officers, and other personnel a leave of absence with salary for 

a period of up to one year in lieu of temporary disability or 

maintenance payments ordinarily payable under California’s 

Workers’ Compensation Act. The parties now agree that Cal. 
(279) SPEER v. COMMISSIONER 281

1We found Los Angeles Administrative Code sec. 4.177 at http:// 

www.amlegal.com/library/ca/losangeles.shtml (follow ‘‘Charter and Administrative Code’’ hyperlink; then expand ‘‘ADMINISTRATIVE CODE’’ menu; 

then expand ‘‘DIVISION 4 EMPLOYMENT - GENERAL’’ menu; then expand ‘‘CHAPTER 3 SALARY STANDARDIZATION FOR FIREFIGHTERS 

AND POLICEMEN’’ menu; then expand ‘‘ARTICLE 6 VACATIONS, 

LEAVES’’ menu; then follow ‘‘Sec. 4.177. Compensation to Be Paid to 

Members of the Fire Department and Police Department Who Are Disabled in the Performance of Their Duties’’ hyperlink) (last visited Mar. 1, 

2015). 2We found Memorandum of Understanding No. 24 (entered into Oct. 29, 

2009) at http://cao.lacity.org/MOUs/MOU24–11.pdf (last visited Mar. 1, 

2015). 

Lab. Code sec. 4850 was inapplicable to Mr. Speer during his 

years of service with the LAPD and that when, during those 

years, he was on temporary disability leave, the provision of 

law governing his compensation was section 4.177 of the Los 

Angeles Administrative Code (LAAC). LAAC sec. 4.177 is 

entitled ‘‘Compensation to Be Paid to Members of the Fire 

Department and Police Department Who Are Disabled in the 

Performance of Their Duties.’’ 1 Subsection (a) thereof deals 

with temporary disability and provides: 

Any member of the Fire Department or Police Department who is temporarily disabled by reason of illness or injury proximately caused by, 

arising out of, and in the course and scope of his employment, shall 

receive as temporary disability compensation (Division IV of the Labor 

Code of the State of California) an amount equal to his base salary less 

the sum that would be deducted therefrom pursuant to Section 4.2014 

of this Code or Charter Sections 1324, 1420, 1514, or 1614, as applicable, 

if he were actively performing his duties. Provided, however, that in no 

event shall any member of the Fire Department or Police Department 

receive any temporary disability compensation pursuant to this subsection after he has been granted a pension, or for a period longer than 

one (1) year. In the event that the member is temporarily disabled and 

prevented by such temporary disability from returning to duty at the 

expiration of one (1) year, and said member has not been granted a pension prior to that time, he shall then receive temporary disability compensation at the rate provided in Division IV of the Labor Code of the 

State of California. 

When Mr. Speer retired in 2009, his entitlement to pay 

and benefits was governed by Memorandum of Understanding No. 24 (MOU 24) between the City and the Los 

Angeles Police Protective League. 2 MOU 24 is a collective 

bargaining agreement, and the league is the recognized bar-
282 144 UNITED STATES TAX COURT REPORTS (279) 

3See http://lapd.com/about/history/ (last visited Mar. 1, 2015). 

gaining organization representing Los Angeles police officers 

from the rank of police officer to lieutenant. 3 Section 7.0 of 

MOU 24, entitled ‘‘Benefits’’, is divided into 18 articles. 

Article 7.1 addresses vacations and vacation pay. Article 

7.1.A establishes the employee’s entitlement to vacations 

with full pay. Article 7.1.B establishes the right to accumulate unused vacation time. Article 7.1.E addresses payments 

for unused vacation time on termination of service. It provides: 

In the event any employee, after the completion of the employee’s initial 

year of service, becomes separated from the service of the Department 

by reason of resignation, discharge, retirement, death, or for any other 

reason, cash payment of a sum equal to all earned, but unused vacation, 

including vacation for the proportionate part of the year in which the 

separation takes place, shall be made at the salary rate current at the 

date of the separation to the employee * * * 

Article 7.4 addresses the accrual of sick leave and establishes 

the employee’s right to sick leave with full pay. Article 7.5 

addresses sick leave use. Article 7.6.A addresses accumulated 

sick leave, establishing the right to carry unused sick leave 

over from year to year. Article 7.6.B addresses payments for 

unused sick leave on termination of service. In pertinent 

part, it states: ‘‘If any employee becomes separated from the 

service of the Department by reasons of retirement or death, 

any balance of accumulated sick leave at full pay remaining 

unused at the time of separation shall be compensated to the 

employee * * * by cash payment of 50% of the employee’s 

salary rate current at such date of separation.’’ 

Amerika Tagaloa is a payroll supervisor employed by the 

LAPD. Respondent called him as a witness, and he testified 

as to certain aspects of the LAPD payroll system. On the 

basis of his testimony, we make the following findings. Of the 

541 hours of vacation time that Mr. Speer had accumulated 

at the time of his retirement in 2009, 400 hours had carried 

over to 2009 from 2008 and the remainder, 141 hours, was 

earned in 2009. Four hundred hours of vacation time is the 

maximum that an employee can carry from one year to the 

next. Mr. Speer earned 96 hours of sick leave a year. The 800 

hours of sick leave that he had accumulated at the time of 

his retirement is the maximum balance that an employee can 
(279) SPEER v. COMMISSIONER 283

accumulate. An employee is paid for any sick leave accrued 

in excess of 800 hours. Mr. Speer earned vacation and sick 

leave during periods of both active service and temporary 

disability. While on temporary disability leave, Mr. Speer 

could not take vacation time or sick leave. 

OPINION 

I. Introduction 

Gross income means all income from whatever source 

derived, including, but not limited to, compensation for services. Sec. 61(a). Lump-sum payments received by an 

employee for accrued vacation and sick leave are compensation for services and therefore gross income. See Acquisto v. 

Commissioner, T.C. Memo. 1991–293 (holding lump-sum payment for unused sick leave immediately taxable in full as 

compensation), aff ’d without published opinion, 972 F.2d 

1349 (11th Cir. 1992); Davis v. Commissioner, T.C. Memo. 

1979–478 (holding lump-sum payment for accrued annual 

leave taxable in full as compensation). With an exception not 

here relevant, section 104(a)(1) provides that gross income 

does not include ‘‘amounts received under workmen’s compensation acts as compensation for personal injuries or sickness’’. Section 1.104–1(b), Income Tax Regs., provides that 

the exclusion includes amounts received under ‘‘a statute in 

the nature of a workmen’s compensation act’’. 

California’s general scheme for workmen’s compensation is 

provided by Division IV of the California Labor Code, entitled ‘‘Workers’ [formerly Workmen’s] Compensation and 

Insurance’’ (Workers’ Compensation Act). Cal. Lab. Code div. 

4 (West 2011). LAAC sec. 4.177 discharges the obligations of 

the City under the Workers’ Compensation Act to members 

of its fire and police departments who are either temporarily 

or permanently disabled by reason of duty-connected illness 

or injury. See Radesky v. City of Los Angeles, 112 Cal. Rptr. 

444, 447 (Ct. App. 1974). Cal. Lab. Code sec. 4850 provides 

disability compensation similar to that provided in LAAC sec. 

4.177, but, during Mr. Speer’s employment by the LAPD, it 

did not apply to LAPD officers. See Cal. Lab. Code sec. 4850 

(West 2003) (amended by Stats. 2009, c. 389 (A.B. 1227), sec. 

1, effective in January 2010, which removed a pension 
284 144 UNITED STATES TAX COURT REPORTS (279) 

requirement that previously excluded LAPD officers). The 

City drafted LAAC sec. 4.177 in order to provide LAPD officers and City firefighters with similar disability compensation. See Radesky, 112 Cal. Rptr. at 448. Respondent concedes, and we agree, that Cal. Lab. Code sec. 4850 is a 

statute in the nature of a workmen’s compensation act. See 

Givens v. Commissioner, 90 T.C. 1145, 1148 n.9 (1988) 

(apparently accepting that Cal. Lab. Code sec. 4850 is a 

statute in the nature of a workmen’s compensation act); see 

also Rev. Rul. 68–10, 1968–1 C.B. 50 (holding that payments 

made under Cal. Lab. Code sec. 4850 because of an occupational injury or illness are in the nature of and in lieu of 

workmen’s compensation and excludable under section 

104(a)(1)). Given the similarity between Cal. Lab. Code sec. 

4850 and LAAC sec. 4.177, we conclude that the latter is 

equally a statute in the nature of a workmen’s compensation 

act (hereafter, simply, workmen’s compensation act). 

Cal. Lab. Code sec. 4850(a) entitles a covered employee to 

a disability leave of absence ‘‘without loss of salary’’. That 

phrase has been interpreted to mean that, during that 

absence, the employee continues to accrue benefits such as 

vacation time and sick leave. See Austin v. City of Santa 

Monica, 44 Cal. Rptr. 857, 861 (Dist. Ct. App. 1965) (‘‘The 

word ‘salary’ as used in section 4850, must be understood as 

encompassing the entire compensation to which the employee 

is entitled[.]’’). Given (1) the stated similarity in purpose 

between LAAC sec. 4.177 and Cal. Lab. Code sec. 4850 and 

(2) Mr. Tagaloa’s testimony that Mr. Speer earned vacation 

time and sick leave during periods of both active service and 

temporary disability, we conclude that the ‘‘amount equal to 

his base salary’’ provided for in LAAC sec. 4.177 likewise 

includes the accrual of vacation time and sick leave. 

The question we must address is not whether Mr. Speer’s 

accrual of vacation time and sick leave when he was temporarily absent from work on disability leave gave rise to 

income for those years (it did not) but whether the payments 

that he received on cashing out his leave balances in 2009 

were received by him pursuant to a workmen’s compensation 

act as compensation for personal injuries or sickness. We 

agree with respondent that they were not. They are, therefore, not excludable from petitioners’ 2009 gross income 

under section 104(a)(1). 
(279) SPEER v. COMMISSIONER 285

4On brief, petitioners apparently concede that not all of the $53,513 of 

leave payments is allocable to benefits earned while Mr. Speer was on temporary disability leave. They claim that 422 out of Mr. Speer’s retirementdate balance of 541 vacation hours were earned when he was on such 

leave, which they calculate results in an exclusion of $23,979. They also 

claim that 207 out of his retirement-date balance of 800 sick leave hours 

were earned during those leaves, which results in an exclusion of $16,925 

(the two amounts totaling $40,904). Since we allow them no exclusion, we 

need not be concerned with petitioners’ computations. 

II. The Parties’ Arguments 

Petitioners’ principal argument is that, to the extent that 

the leave payments can be allocated to vacation and sick 

leave benefits earned while Mr. Speer was on temporary disability leave pursuant to LAAC sec. 4.177, those portions of 

the leave payments must be excluded from their 2009 gross 

income under section 104(a)(1) as amounts received under a 

workmen’s compensation act on account of personal injuries 

or sickness. 4

Respondent’s principal argument is that Mr. Speer 

received the leave payments not pursuant to LAAC sec. 

4.177, a workmen’s compensation act, but, rather, pursuant 

to MOU 24, which is not a workmen’s compensation act. 

Respondent further argues that, if the Court determines that 

payments in the nature of the leave payments could have 

been paid pursuant to a workmen’s compensation act (and 

could, therefore, be excludable pursuant to section 104(a)(1)), 

petitioners have not substantiated how many hours, if any, 

were accrued during Mr. Speer’s disability leaves of absence 

or, if so accrued, how many remained unused at the time of 

Mr. Speer’s retirement. 

III. Discussion 

A. Compensation for Personal Injuries or Sickness 

A plain reading of LAAC sec. 4.177 demonstrates that it 

does not establish the salary of an employee (covered 

employee) whose salary is continued pursuant to that provision while the employee is absent from work on a disability 

leave of absence. There is little authority interpreting LAAC 

sec. 4.177, but, given its similarity to Cal. Lab. Code sec. 

4850, we believe that authority interpreting the latter section 

may be equally applied to the former. In Campbell v. City of 

Monrovia, 148 Cal. Rptr. 679, 684 (Ct. App. 1978), the court 
286 144 UNITED STATES TAX COURT REPORTS (279) 

of appeal stated: ‘‘[Cal. Lab. Code sec. 4850] says no more 

than that during the period of disability of a member as 

defined in the section there shall be no loss of salary 

(including sick leave benefits), but it does not create the 

salary or any other benefit, nor purport to continue entitlement to any benefit beyond the period of disability it 

defines.’’ In Boyd v. City of Santa Ana, 491 P.2d 830, 832 

(Cal. 1971), the Supreme Court of California held: ‘‘Payments 

pursuant to section 4850 are not salary but workmen’s compensation benefits.’’ It found that the purpose of the provision was to continue a covered employee’s salary during the 

hiatus between the disability onset and the employee’s disability retirement (or, we assume, some other event terminating his leave of absence). Id. at 832–833. Lower California 

courts have made clear that payments pursuant to the provision are not remuneration for work done but, rather, indemnification for injury or sickness. See, e.g., Hawthorn v. City 

of Beverly Hills, 245 P.2d 352, 355 (Cal. Dist. Ct. App. 1952). 

That court held: ‘‘Wages and salary may, under some circumstances, be paid as compensation in lieu of the normal 

temporary disability payments prescribed by the [Workmen’s 

Compensation] Act. Such payments do not constitute salary 

or gratuities, but are payments of compensation under the 

Act.’’ Id. (fn. ref. omitted). It concluded: ‘‘The payment 

required by section 4850 is not salary as such; it is compensation for injury received * * *. It is in place of the 

normal temporary disability allowance under * * * [the 

Act].’’ Id. at 356. 

During each of his disability leaves of absence, Mr. Speer 

received periodic payments of his base salary and he accrued 

fringe benefits, such as vacation time and sick leave, that 

would translate into additional payments to him only after 

his disability leave of absence ended. Indeed, if a covered 

employee were to forgo the vacation time and the sick leave 

accrued during a disability leave of absence (as Mr. Speer 

claims he did), decades might pass until the employee retired 

and cashed out the forgone benefits. Mr. Speer’s accrual of 

vacation time and sick leave while on temporary disability 

leave did not provide him with an immediate benefit that he 

could use to support himself while on such leave. The fringe 

benefit represented by the accrual was, thus, fundamentally 

different from the normal temporary disability allowance 
(279) SPEER v. COMMISSIONER 287

payable under the Workers’ Compensation Act and for which 

the continuation of his base salary under LAAC sec. 4.177 

substituted. See id. The Workers’ Compensation Act does not 

provide for any payments after the period of disability ends 

and, in fact, instructs that payments shall stop or be 

amended upon a finding that the disability has terminated or 

been diminished. See Cal. Lab. Code sec. 5803 (West 2011); 

Sogov v. Indus. Accident Comm’n, 9 P.2d 592, 593 (Cal. Dist. 

Ct. App. 1932) (sustaining a finding that disability terminated on specified date and so compensation also terminated 

as of that same date). Thus, any payments Mr. Speer 

received after his temporary disability ended cannot be part 

of the City’s substitute for the Workers’ Compensation Act. 

Petitioners place great weight on our report in Givens v. 

Commissioner, 90 T.C. 1145. In Givens, a Los Angeles 

County deputy sheriff was injured in the course of his duties 

and was on disability leave for more than a year. The Los 

Angeles County Code set forth a workmen’s compensation 

system that incorporated Cal. Lab. Code sec. 4850 for those 

eligible and provided additional compensation after expiration of the first year of disability. Specifically, it provided 

that the deputy would receive payments out of his accumulated sick leave. We held those payments to be excludable 

from gross income under section 104(a)(1). Givens is distinguishable. In Givens, we found that the county had adopted 

a comprehensive workmen’s compensation scheme incorporating not only the provisions of Cal. Lab. Code sec. 4850 

but also sick leave provisions provided for in the Los Angeles 

County Code. Petitioners have failed to show that the sick 

and vacation leave cashout provisions in MOU 24 were part 

of a comprehensive workmen’s compensation scheme covering 

Mr. Speer. 

Finally, we point out that, in determining whether income 

is excludable under section 104(a)(1), the treatment of one 

benefit in the nature of workmen’s compensation does not 

control the treatment of a separate and distinct benefit that 

may be payable under the same statutory scheme. In Allison 

v. Commissioner, T.C. Memo. 1986–346, we addressed 

‘‘salary continuation payments’’ made to an employee under 

the Federal Employees’ Compensation Act (FECA), 5 U.S.C. 

secs. 8101–8193 (1982). In addition to other payments, FECA 

provides for the continuation of an employee’s salary for a 
288 144 UNITED STATES TAX COURT REPORTS (279) 

period of 45 days commencing on the date the employee files 

a claim involving an occupational injury. FECA appeared to 

us to be a statute in the nature of a workmen’s compensation 

act, but we found the payments at issue to be for the delay 

that usually preceded the commencement of disability payments and not for the disability itself. We held the payments 

did not qualify for exclusion from the taxpayer’s gross income 

pursuant to section 104(a)(1). Likewise, we conclude that the 

leave payments, which compensated Mr. Speer for his failure 

to take the vacation with pay that he had earned or the sick 

leave that similarly he had earned (even if in part traceable 

to benefits accrued during periods of disability leaves of 

absence), were not paid as workmen’s compensation under 

the Workers’ Compensation Act and are not excludable from 

petitioners’ gross income pursuant to section 104(a)(1). 

B. Substantiation 

Even were we to hold that lump-sum payments for unused 

vacation and sick leave accrued by an employee pursuant to 

MOU 24 could be payments under a workmen’s compensation act for personal injuries or sickness, petitioners have 

failed to show how many hours, if any, Mr. Speer accumulated during his disability leaves of absence and how many 

of those hours remained when he retired in 2009. 

Petitioners argue that at least a portion of the 541 hours 

of unused vacation leave and a portion of the 800 hours of 

unused sick leave Mr. Speer had when he retired were 

accrued during his disability leaves of absence. Petitioners 

have not presented any evidence that clearly shows how 

many hours, if any, he accrued during those absences. Officers are limited to 800 hours of sick leave and are paid for 

any additional accrued sick leave. In order to determine 

whether on retirement Mr. Speer had accrued but unused 

leave from periods of temporary disability we would need to 

know his entire sick leave history. The record is devoid of 

this information, and it is therefore impossible to determine 

whether any of the 800 hours were accrued during periods of 

disability leave. 

Petitioners similarly cannot demonstrate that any of the 

541 hours of unused vacation leave were accrued during his 

leaves of absence. Officers are limited to banking 200 hours 

of vacation leave per year and a total of 400. Mr. Speer had 
(279) SPEER v. COMMISSIONER 289

5 In their seriatim reply brief, petitioners ask that we reopen the record 

and accord them additional trial time to offer evidence obtained from the 

LAPD concerning Mr. Speer’s accumulation of vacation time and sick 

leave. At trial, petitioners offered a document (Exhibit 5–P) that Mr. Speer 

stated he received from the LAPD showing periods of disability, vacation 

hours earned during those periods, and sick time accrued during various 

years. In offering Exhibit 5–P, Mr. Speer conceded: ‘‘I’m not sure, to be 

honest, that it’s accurate for the amount of time.’’ We sustained respondent’s objection to the exhibit on evidentiary grounds (lack of a showing of 

authenticity and inadmissible hearsay) and on the grounds that it had 

been neither stipulated nor provided to respondent 14 days in advance of 

trial, as provided for by our standing pretrial order (so that respondent 

would have time to investigate it). Petitioners again ask us to receive Exhibit 5–P and also an exhibit (Exhibit 1) that they attached to their seriatim opening brief but that we detached and returned to them as an improper document in the nature of evidence. Petitioners describe Exhibit 1 

in that brief as containing ‘‘a letter from Laura Luna, police administrator, 

and charts reflecting sick time and vacation time accrued while petitioner, 

Mr. Speer, was on disability during various periods from 1982 through 

2007 and paid to petitioner, Mr. Speer, upon his retirement in 2009.’’ 

Petitioners filed the petition on January 6, 2012. Before we conducted 

the trial on February 3, 2014, the case was set for trial three times and 

continued three times, each time, it appears, at petitioners’ request, once 

so petitioners could undertake prescheduled travel on account of the birth 

of a grandchild. At no point before the trial did petitioners indicate to the 

Court any difficulty in obtaining evidence to support their case. While petitioners appear pro sese, we think that their lack of demonstrated diligence 

in obtaining from the LAPD what evidently they think are important documents argues against our opening the record and burdening respondent 

with additional investigation and another trial session. See, e.g., Haydon 

v. Commissioner, T.C. Memo. 1991–42 (denying motion for reconsideration 

and declining to accept new evidence where taxpayers made no showing 

of due diligence or explained why documents could not have been obtained 

earlier). We will not open the record as petitioners requested. 

541 hours of vacation leave at retirement because he had not 

yet lost vacation leave accrued during 2009. Just as with the 

sick leave, we would need to know Mr. Speer’s vacation history in order to determine whether any of the unused leave 

was accrued during his leaves of absence. Again, the record 

does not contain this information. 5
290 144 UNITED STATES TAX COURT REPORTS (279) 

IV. Conclusion 

Respondent’s adjustment, including in petitioners’ 2009 

gross income the leave payments, is sustained. 

Decision will be entered under Rule 155

f 

.