T.C. Memo. 2012-28

UNITED STATES TAX COURT

SEAN S. BROWN, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 20223-09. Filed January 31, 2012.

Sean S. Brown, pro se.

James R. Bamberg, for respondent.
- 2 -

MEMORANDUM FINDINGS OF FACT AND OPINION

GOEKE, Judge: Respondent determined a deficiency in petitioner’s Federal

income tax of $20,104 and an accuracy-related penalty of $4,021 for 2007. The

issues for decision are: (1) whether petitioner was required to report interest income

of $59,061.46 (We hold that petitioner was required, but failed, to report such

income.); and (2) whether petitioner is liable for an accuracy-related penalty

pursuant to section 6662(a)1 (We hold that he is so liable.).

FINDINGS OF FACT

Petitioner resided in Florida when his petition was filed. In 2007, petitioner

won a settlement award against the United States Postal Service (USPS) for

backpay in the gross amount of $205,848.95. After various amounts were withheld,

petitioner received a check for the settlement award of $134,461.77. Petitioner

received a second check for interest on the settlement award of $57,753.59. The

remittance advice sent with the second check advised petitioner: 

Any tax liability resulting from this payment is your responsibility. The IRS

makes the determination on whether taxes must be paid. You should consult

the IRS or a tax attorney to answer any tax reporting questions that you may

have.

1Unless otherwise indicated, section references are to the Internal Revenue

Code in effect for the year in issue.
- 3 -

Petitioner later received a Form W-2, Wage and Tax Statement, from the

USPS which indicated that petitioner received wages for 2007 of $242,792. 

Petitioner received a Form 1099-INT, Interest Income, from the USPS indicating 

that he received interest income of $57,753.59 in 2007. Additionally, petitioner

received a Form 1099-INT from Suncoast Schools Federal Credit Union indicating

that he received interest income for 2007 of $1,307.87. Petitioner, through his paid

preparer, Amscot Tax Service, timely and electronically filed his 2007 Federal

income tax return. On that return petitioner did not report any interest income.

Following petitioner’s receipt of respondent’s notice of deficiency, on August

24, 2009, petitioner timely filed a petition with this Court. A trial was held in

Tampa, Florida. Following trial, we allowed petitioner additional time to support

his trial position with further evidence. Petitioner failed to do so. Thus, the trial

record was subsequently closed.

OPINION

I. Gross Income

Gross income includes all income from whatever source derived. Sec. 61(a). 

Interest income is expressly included in this definition. Sec. 61(a)(4).
- 4 -

At trial, petitioner recognized that he should have included the interest

payments in his gross income.2 Petitioner’s main contention, instead, is that the

USPS deposited $20,000 from the settlement award into his workplace retirement

account and that this amount should be excluded from income. Petitioner submitted

no evidence of any transfer of settlement proceeds to his retirement account. 

Accordingly, we cannot determine the validity of petitioner’s claim. 

As petitioner has conceded that the interest payments should have been

included in his gross income, respondent’s determinations on this issue are

sustained. 

II. Accuracy-Related Penalty

Section 6662(a) and (b)(2) imposes a penalty equal to 20% of the portion of

an underpayment of tax that is attributable to any substantial understatement of

income tax. A substantial understatement of income tax exists if the amount of the

understatement for the taxable year exceeds the greater of 10% of the tax required

to be shown in the return for such year or $5,000. Sec. 6662(d)(1)(A).

2

In an amended return which was apparently filed incorrectly, petitioner also

correctly included those payments.
- 5 -

Petitioner underpaid his tax liability by $20,104, an underpayment that

exceeds 10% of the tax of $79,398 which was required to be shown on his 2007

return. Accordingly, petitioner is liable for the section 6662 penalty.

Section 6664(c) provides a reasonable cause exception to the accuracyrelated penalty. Generally, under section 6664(c)(1), no penalty is imposed under

section 6662 with respect to any portion of an underpayment if it is shown that there

was reasonable cause for such portion and that the taxpayer acted in good faith with

respect to such portion. Petitioner failed to argue that the reasonable cause

exception applies to his underpayment; moreover, the record does not suggest that

he acted with reasonable cause and in good faith by failing to include interest

income on his 2007 return.

To reflect the foregoing,

Decision will be entered

for respondent.