T .C. Su m m ary Op i n io n 2 01 7 -7 4

UNITED STATES TAX COURT

EDWARD COLLINS, Pet i t i o n er v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 1 6 2 45 -1 5 S. Fi l edSep t em b er 1 1 , 2 0 1 7
.
Edward Co l l in s , p ro s e. Kat h l een K. Raup , fo r res p o n den t .

SUM M ARY OPINION HALPERN, Ju d g e: Th i s cas e was h eardp u rs u an tt o th e p ro v i s io n s o f
s ect i on 7 4 6 3 1 o f t h e In t ern al Rev en u e Co d e i n effect wh en th e p et i t i o n was fi l ed
.

1 Un l es s o t h erwi s e i nd i cat ed , al l s ect i o n referen ces are t o th e In t ern al Rev enu e Co de o f 1 98 6 , as am en d edan di n effect fo r 2 0 1 2 , an d al l Ru l e referen ces are t o the Tax Co urtRu l es o f Pract i ce an dPro cedure.- 2
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Pu rs u an t t o s ect i o n 7 4 6 3(b ), th e d eci s i o n t o b e en t eredi s n o trev i ewab le b y an y
o th er co u rt , an dth i s o p i ni o n s h al l n o t b e t reat ed as p reced en tfo r an y o th er cas e. Res po n d en td et erm i n eda d efi ci en cy i n p et i t i o n er's 2 01 2 Fed eral i n co m e t ax o f $ 2 9 ,7 5 0 . Th e o n l y i s s u e fo r d eci s i o n i s wh et h er $ 8 5 , 0 0 0 recei v edb y p et it io n er du ri n g 2 0 1 2 i n s et t l em en to f a l aws u i tan dd es cri b edi n a s et t lem en tt erm s h eetas

" p ay ab l e * * * fo r em o t i o nal d is t res s " i s ex cl u dab l e fro m h i s 2 0 1 2 g ro s s i n co m e. W e co n cl u d e t h at i ti s n o t . Pet i t i o ner b ears th e b u rd en o f p ro of. See Ru l e 1 4 2 (a). 2 Back gro u n d Pet i t i o ner res i dedi n New J ers ey wh en h e fi l edth e p et i t i on . Th e p art i es h av e s ti p u l at edcert ai n fact s an dth e au t h en t i ci t y o f cert ai n d o cu m en t s . Th e fact s
s t ip u l at edare s o fo u n d , an dd o cu m en t s s t ip u l at edare accep t edas au t h en ti c. Pet i t i o ner b eg anwo rk i n g atPubl i c Serv ice El ect ri c & Gas (PSE&G) i n 1 9 7 2 . InM arch 2 0 10 , p et i t i o n er was t ran s ferred t o wo rko u t o f PSE&G's o ffi ce i n Au dub on , N.J ., an dwas s ubject edt o a raci al ly h os t i l e wo rken v i ro n m en t. In J an u ary 2 0 1 1 , p et i t i o n er's d o ct o r d i ag no s edh i m wi t h d ep res s i o n , g en eral an x i et y

2 Pet i t i on er h as n o t rai s edth e ap p l i cab i l i t y o f s ec. 7 4 9 1 (a), wh i ch s h i ft s th e b u rd eno f p ro of t o th e Co m m i ss i o n er i n cert ai n s i tuat i o n s . W e co n cl ud e t h ats ec. 7 4 9 1 (a) d o es n o t ap p ly

h ere b ecau s e p et i ti o n er h as n otp ro duced an y ev id en ce t h at h e h as sat i sfi edth e p reco nd i t i o n s fo r i t s ap p l icat i o n.- 3
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d i s o rd er, h y

p ert en s i o n , b l oo dcl o t s , an dm u s cl e s pas m s . Pet i ti o n er l eft wo rko n d i s ab i l i ty l eav e. In M ay

2 0 1 1 , h e b ro u g hts u itag ai n s tPSE&G i n New J ers ey St at e
co u rt . He s etfo rt h th ree co u nt s : (1 ) PSE&G h ads ub ject edh i m

t o a raci al l y h o s t i l e wo rken v i ro nm en t , (2 ) i th add i s cri m i n at ed ag ai ns th i m o n acco u n t o f h i s race, an d(3 ) i th adret al iat edag ai n s th i m o n acco u n to f h i s co m

pl ai n t s o f d i s cri m i n at i o n . Ins up p o rto f t h e fi rs ttwo co u n t s , p et i t i o ner av erred , am o n g o th er th i n g s , th ath i s PSE&G s up erv i s o r h adreq u i redh i m t o p erfo rm

wo rki n a m o re b u rd en s om e m an ner t h an t h at requ i redo f wh i te i n d i v i du al s i n co m p arab l e p o s i t i on s b y , fo r i n s t an ce, g i vi n g h i m m o re m et er-read in g s to p s o n Satu rd ay s th an were g i v ent o wh i t e em

p l o y ees . Ineach co u n t , i n ad di t i o n t o al leg i ng th at , as a
res u l t o f PSE&G's act io ns , h e h ad s uffered a fi n an ci al l o s s , p et i t i o n er al l eg edth at , as a res ul to f PSE&G's act i o n, h e h ad " s uffered s ev ere em o t i o n al d i s t res s an d
an x iet y , wi t h p h y s i cal m an i fes t at i o n s , i n cl u d i n g h i g h b l o o dp res s u re" . Al s o , as p arto f each co u nt , h e al leg edth atPSE&G's h aras s m en t an dd i s cri m i n at i o n ag ai n st h i m h ad" cau s edh im

t o b eg i n t al k i n g [s i c] an t i -d ep res s an t m ed icat i o n an dt o b e treat ed b y b o t h a t h erap i s tan d p s y ch i atri s t ." Am o n g p et i t i o n er's d em an ds fo r rel i ef were d em an d s fo r l os t w ag es , b en efi ts , i n su ran ce an dp en s i o n co v erag e, an d fri n ge b en efi t s . Sep arat el y , p et i t i o n er al s o d em an d edth atth e co u rto rd er PSE&G t o co m p en s at e h i m " fo r t h e s ev ere em o ti o n al d i s t res s , h u m i l i at io n , an dan g u i s h h e- 4
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h as s u ffered o n acco u n to f d efen d an t 's u n l awfu l co n duct " . Pet i t i o n er d em an d edn o
co m p en s at i o n fo r an y ph y s i cal i n jury o r p h y s i cal s i ckn es s . InM arch 2 0 1 2, p et i t i o n er, t h ro u g h h i s at t o rn ey s , an dPSE&G s et t l edth e l aws u i t , an deach p art y , act i ng atarm 's l en g t h an d i n g o o dfai t h , ex ecu t eda s et t l em en tt erm s heet (t erm
s h eet ) t o m em o ri al ize t h e t erm s o f s et t l em en t . Th e t erm s h eet , referri n g o nl y

t o the

" m at ter" (an dwi t h o u treferen ce t o th e i n d i vi du al co u n t s), s t at edth at PSE&G
wo u l dp ay

p et it i o n er t he s u m

o f $ 2 7 5 ,0 0 0 as fo l l o ws : (1 ) $ 9 0,0 0 0 p ay ab l e t o p et i t i o n er's at t o rn ey s ; (2 ) $ 1 5,0 0 0 t o p et i t i o n er fo r rei m b urs em en to f h i s u np ai dm ed i cal ex p en s es ; (3 ) $ 8 5,0 0 0 t o p et i t i o n er fo r em o t i o n al d i s t res s ; an d (4 ) $ 8 5,0 0 0 t o p et i t i o n er, l es s Fed eral an d St at e wi t h h o l d in g t ax es . PSE&G p ai d t h e am o u n ts cal l edfo r b y th e t erm s h eet . Pet i t i o ner m ad e a t im el y

retu rn o f Fed eral i n co m e t ax fo r 2 0 1 2 o n Fo rm 1 0 4 0 , U.S. In d i v i du al In co m e Tax Retu rn . Onl i ne 2 1 o f t h e Fo rm 1 0 4 0 , p et i t i o n er rep o rt edas " Oth er i n co m e" the $ 8 5,0 0 0 recei v edfro m PSE&G fo r em ot i o n al d i s tres s . On l i n e 3 6 o f t he Fo rm 1 04 0 (a co m

p ut at io n al l i n e, n otcal l i n g fo r t h e i n cl u s i o n o r d edu ct io n o f an y am o u n t ), p et i t i o n er cl ai m ed a d edu ct i o n o f $ 8 5 ,0 0 0. Th e d edu ct i o n ap p aren t l y res u l t s fro m

p et i t io n er's co nt en t io n th atth e $ 8 5 , 0 0 0 recei v edfo r em ot io n al d i s t res s an drep o rt edo n l i n e 2 1 i s n o tt ax ab l e.- 5
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Th e d efi ci en cy

i n t ax at i s s u e h ere res u l t s p ri n ci p al ly fro m res p o n d en t 's d i s al lo wan ce o f t h e $ 8 5 ,0 00 d edu ct i o n p et it i on er cl ai m edo n l i n e 3 6 o f h i s 2 0 1 2 Fo rm 1 0 4 0
. Di s cu ss i o n I. In tro du ct io n As s t at ed , we m

us t d et erm i n e wh ether t h e $ 8 5 , 0 00 th at p et i t io n er recei v ed fo r em o ti o n al d i s tres s fro m PSE&G p u rs u an tt o th e t erm s h eet(d i sp u t ed$ 8 5 ,0 0 0 ) i s ex cl ud ab l e fro m

h i s g ro s s i n co m e. 3 Th e p art i es h av e s ub m i t t ed l eg al
m em o ran d a co ncern i n g t h ati s s u e. 4 Dam ag es (o t her t h an p u n i t i v e d am ag es ) recei v edo n acco u n t o f p ers o n al p h y s i cal i n

juri es o r p h y s i cal s i ckn es s m ay g en eral l y b e ex cl u d edfro m

g ro s s i n co m e. Sec. 1 0 4 (a)(2 ). Em o t i o n al d i s t res s i s n ottreat edas a p ers o nal p h y s i cal i n jury o r p h y s i cal s ickn es s . Sec. 1 0 4 (a) (fl u sh l an g uag e). Ho wev er, d am ag es fo r

3 Al t h o ug h t ech n i cal l y , res p o n d en tad ju st edp et i t i o n er's 2 0 1 2 i n co m e b y d i s al lo wi n g a d edu ct i o n , th e p art i es s eem t o ag ree (an d we wi l l treat i tas s u ch ) th atth e qu es t i o n fo r d eci s i o n i s o n e o f wh et h er t h e d i s p u t ed$ 8 5 , 0 00 i s ex cl u d ab le fro m g ro s s i n co m e. 4 Pet i t i on er h as at t ach edex h i b i t s t o h i s m em o ran du m . Att ach m en t s t o b ri efs o r t o l eg al m em o ran d a fi l edi n l i euo f a b ri ef are n o t ev id en ce, an d we m ay n o t co n si d er t h em . E.g ., Kan ofs ky v . Co m m i s si on er, T.C. M em o . 2 00 6 -7 9 , aff'd , 2 7 1 F. Ap p 'x 1 4 6 (3 dCi r. 2 0 0 8 ); s ee Ru l e 1 4 3 (c). W e wi l l d i s reg ardth os e at t ach m en t s .- 6
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em ot i o n al d i s t res s at t ri b u tab l e t o a p h y s i cal i nju ry o r p h y s i cal s i cknes s are
ex cl u d edfro m

g ro s s i n co m e u nd er s ect i o n 1 0 4 (a)(2 ). Sec. 1 .1 0 4 -1 (c)(1 ), In co m e Tax Reg s . Al s o , d am ag es n o t i n ex ces s o f t h e am o un tp ai dfo r m ed ical care at tri b u t ab l e t o em ot i o n al d i s t res s are ex cl u d edfro m g ro s s i n co m e. Sec. 1 0 4 (a) (fl u sh l an g u ag e). Pet i t i o ner arg u es th atth e d i s p u t ed$ 8 5 ,0 0 0 was m i s ch aract eri zedi n th e t erm
s h eetas p ay ab l e t o h im

fo r em o t i o n al d i s t res s wh en , " m o re accu rat el y ", i ts h o u l d h av e b een s h o wn as fo r " p h y s i cal i n jury an dp h y s ical s i cknes s " (v i z, " i n cl u d i n g h i g h b lo o dp res s u re" ) " as o u t l i n edi n th e * * * co m p lai n t." Res p o n d en targ u es th atth e t erm s h eetcl earl y

s t at es th atth e d is pu t ed $ 8 5 ,0 0 0 was p ai d fo r em o t i o nal d i s t res s , an d , " [e] v en i f t h e Set t lem en tTerm Sh eet
were s i l en t , i t wo u l d b e cl ear t h atth e p aym en twas n o t fo r p h y s i cal i n juri es . Th ere
was n o al l eg at i o n i n th e co m pl ai n tth atp et i ti o n er s u ffered p hy s i cal i n juri es o r was
s eek i n g d am ag es fo r p h y s i cal i n juri es o r s i ckn es s ." II. An al y s i s Wh en d am ag es are recei v edp u rs u an tt o a s et t l em en tag reem en t , th e n atu re
o f t h e cl ai m u n d erl y i n g th e s et t l em en tag reem en tco n t ro ls wh et h er a p aym en ti s
ex cl u d ab l e u n der s ect i o n 1 0 4 (a)(2 ). Un i t edSt at es v . Bu rk e, 5 0 4 U.S. 2 2 9 , 2 3 7 (1 9 9 2); Si m

p s o n v . Co m

m i s s i o n er, 1 4 1 T.C. 3 3 1 , 3 3 9 (2 0 1 3 ), aff'd , 6 68 F. Ap p 'x- 7
-

2 4 1 (9 th Ci r. 2 0 16 ). Anex pres s al l ocat io n i n th e s et t l em en tag reem en t i s g en eral l y b i n d i n g fo r t ax pu rp o s es p ro v i dedth e ag reem en twas en t eredi n t o b y ad v ers ari al p art i es act i ng at arm 's l en g t h an d i n g o o d fai t h . Bag l ey v . Co m m i s s i o n er, 1 0 5 T.C. 3 9 6 , 4 0 6 (1 9 9 5), aff'd , 1 2 1 F.3 d3 9 3 (8 t h Ci r. 1 9 9 7 ).

" Th e i nt en to f t h e p ay o r, an d n o tth e reci p i en t , i s cri t i cal i n d et erm i n i n g th e
v al i d i ty o f an ex p res s al l o cat io n i n a s et t l em en tag reem en t ." E.g ., Gu ti errez v . Co m m i s s i o n er, T.C. M em o . 2 0 1 1 -2 6 3 , 2 0 11 W L 5 3 4 6 6 43 , at* 3
. Cert ai n l y , th e t erm

s h eetd o es s t at e t hatth e d i s p u t ed$ 8 5 , 0 00 i s t o b e p ai dt o p et i t i o n er " fo r em o t i o n al d is t res s " an dn o tfo r an y p h y s i cal i n

jury o r p h y s ical
s i ckn es s . An dwh i l e i n t h e co m p l ai n tp et i t io n er av ers th ath e was req u i redt o
m ak e m o re m et er-read i n g s t o p s o n Satu rd ay s t h an wh i t e wo rk ers , h e d oes n o tav er th ath e s u ffered p hy s i cal i n jury o r s i cknes s fro m

th e ex t ra wo rk . Th e co m p l ai n t
s t at es i n th e t h ree co u n t s th ath e s u ffered " s ev ere em o t io n al d is t res s an dan x i et y , wi th p hy si cal m an i fes t at i o n s " as the res u l to f t h e co m p an y 's raci al l y

h o s t i l e wo rk
en v iro n m en t , d i s cri m i n at i o n, an dret al i at io n , n o tas the res u l to f an y p h y s i cal i n jury o r p h y s i cal s ickn es s . Th e co m p lai n tl i k ewi s e cl ai m s th ath i s d ep res si o n was du e t o PSE&G's h aras s m en tan dd is cri m i n at i o n, an dn otdu e t o p h y s i cal i n jury o r p h y s i cal s i ckn es s . Pet i t i o ner's d em an d s fo r rel i ef co nt ai n a s p eci fi c d em an dth at PSE&G co m

p en s at e h im

fo r " s ev ere em ot i o n al d i st res s , h u m i l i at i o n , an dan g u i s h " ,- 8
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b u tn o d em an dfo r co m

p en s at i on fo r an y

p h y s i cal i n

jury o r p h y s i cal s i ckn es s . Th e p art i es h av e s ti p ul at ed t h at p et i t i o n er an d PSE&G ex ecu t ed t h e t erm s h eetatarm 's l en g th an di n g o o d fai t h , each b ei n g rep res en tedb y co u n s el . Pet i t i o ner h as o ffered
n o p ers u as i v e ev i d en ce t h atth e reas o n s tat edi n the t erm s h eet fo r t h e p aym en t t o h i m o f t h e d i s p u t ed$ 8 5 ,0 0 0 --" p ay ab l e t o Pl ai n ti ff, EdCo ll i n s , fo r em o ti o nal d i s tres s " --i n accu rat el y d es cri b es PSE&G's i nt en ti n ag reei n g t o th e p aym en t . An d wh i l e t h ere m ay b e s o m e am b i g u it y as t o wh at t h e p art ies t o t he t erm
s h eeti nt en d edt o en co m

p as s wi t h i n th e m ean i n g o f th e t erm " em o t io n al d is t res s " , p et i t i o n er h as fai l edt o p ers u ad e u s th at t he p h y s ical m an i fes t at i o n s, i ncl u d i n g h i g h b l o o dp res s u re, t h ath e m ay h av e s uffered am o u n tt o p h y s i cal i n juri es o r p h y s i cal
s i ckn es s wi t h i n t h e m ean in g o f s ect io n 1 0 4 (a). Th e l eg i s l at i v e h i s to ry o f s ect i o n 1 0 4 (a) s t at es i t" i s i n t en dedthatth e t erm em o t io n al d is t res s i n cl ud es s ym p t o m s (e.g ., i n s o m

n i a, h ead ach es , s t o m ach d i so rd ers ) wh i ch m ay res u l tfro m

s u ch
em ot i o n al d i s t res s ." H.R. Co n f. Rep t. No
. 1 0 4 -7 3 7 , at3 0 1 n .5 6 (1 99 6 ), 1 9 9 6 -3 C.B. 7 4 1 , 1 0 4 1 . Th erefo re, t h e fact th ata t ax pay er s u ffers p h y s ical s ym p to m s fro m em o t i o n al d i s t res s d o es n otm ean th atd am ag es recei v edo n acco u n to f t h e
em ot i o n al d i s t res s qual i fy fo r ex cl us i on fro m

g ro s s i n co m e u n der s ect i o n 1 0 4 (a)(2 ). See, e.g ., San fo rdv . Co m m i s s i o n er, T.C. M em o . 2 0 0 8 -1 5 8 (n o
ex cl u s i o n fo r d am ag es fo r em o t i o n al d i s t res s m an i fes tb y p h y s ical s ym

p to m s- 9
-

i n cl u d i n g d ep res s io n , s k i n i rri tat i o n , ap p et it e l o ss , as t h m a, s l eep d ep ri v at i o n , an d
s ev ere h ead ach es ). In Li n d s ey v . Co m m i s s i o n er, T.C. M em o . 2 0 0 4 -1 1 3 , 2 0 0 4 W L 1 0 5 2 7 7 7 2, at * 5 , aff’ d , 4 2 2 F.3 d6 8 4 (8 t h Ci r. 2 0 05 ), wh i l e o b s erv i ng th at
u n treat edh y

p ert en si o n (h ig h b lo o dp res s u re) m ig h tl eadt o s t ro kes , h eart at t ack s , an d k i dn ey

d i s eas e, we cl as s ifi edh y p ert en s i o n as th e ty

p e o f i n jury o r s i ckn es s th atCo n g res s i n ten d edt o b e en co m p as s edwi t h i n th e d efi n i t i o n o f em o t i o nal d i s tres s . See al s o Li n d s ey v . Co m m i s s i o n er, 4 22 F.3 d at6 8 8 (ag reei n g wi t h th e Tax Co u rtth ath y

p ert en s i on rel at es t o em o t i o n al d is tres s an dn o t t o p h y si cal
s i ckn es s ). Attri al , p et i t i o n er i nv i t edo u r at t en t io n t o Park i n s o n v . Co m m is si o n er, T.C. M em o. 2 0 1 0 -1 4 2 , 2 0 10 W L 2 5 9 5 0 0 5 , at* 2 , a cas e i n wh i ch , i n h i s co m p l ai n t ag ai n s th i s em

pl o y er, t h e t ax p ay er al leg edth ath e h ad " s uffered s ev ere em ot i o n al d i s tres s , m an i fes t edb y

p erm an en t , i rrep arab l e p h y s i cal h arm i n th e fo rm

o f * * * [a] s eco ndh eart at t ackan di t s s equ el ae." Th e t ax p ay er an d h i s em pl o y er h ad
n eg ot i at eda s et tl em en tag reem en ti n wh i ch , am o n g o t h er t h in g s, th e em p l o y er ag ree t o p ay

h i m a s u m as " no n eco n o m i c d am ag es an dn o t as wag es o r o t h er i n co m e" . Id
. Becau se t h e s et t lem en tag reem en t l ack eds p eci fi ci t y i n d es cri b i n g th o s e d am ag es , we fel t free t o co n s i d er fact s t h atrev eal edth e p ay or's i n ten ti n
m ak i n g t he p aym en t . Id . at* 4 . W e fo u ndi t" sel f-ev i d en tth ata h eart at t ackan d- 1 0 -

i t s p h y s i cal aft ereffect s co n s ti tut e p h y s i cal i n jury o r s i ckn es s rat h er t h anm ere
s ub ject i ve s en s at i o n s o r s ym pt o m s o f em o t i o nal d i s t res s ." Id
. at* 5
. W e h adn o d o ub t" thatth o s e p hy s ical i nju ri es fi g u redp ro m i nen t l y am on g th e 'n o n eco n o m i c d am ag es ' fo r wh i ch th e s et t lem en tp aym en t was m ad e." Id . at* 6 . W e fo u n dth at
o n e-h al f o f t h e s u m recei v edas n o n eco n o m i c d am ag es was recei v edo n acco u n to f p h y s i cal i n

jury o r p h y s i cal s i ckn es s an d was , as a res ul t , ex cl u d ab l e fro m th e t ax p ay er's g ro s s i n co m e u n d er s ect i o n 1 0 4(a)(2 ). Id
. at* 7
. Park i n s o n i s d i s t i n gu i sh ab l e b ecau s e p et i t i o n er h as fai l edt o p ro v e t h atan y p o rt i o n o f t h e d i s p u t ed$ 8 5 ,0 0 0 was p ai d t o h i m fo r p h y si cal i n

j u ry o r p h y s i cal s i ckn es s . III. Co n cl u si o n W e s u s t ai n res p o nd en t 's ad ju s t m en ti n cl ud i ng th e d i sp u t ed$ 8 5 ,0 0 0 i n p et i t i o n er's 2 0 1 2 g ro s s i n co m e. Pet i t i o ner d idn o trecei v e t h e d i sp u ted$ 8 5 ,0 0 0 as d am ag es o n acco u n to f p ers o n al p h y s ical i n juri es o r p ers o n al s i ckn es s as th o s e t erm s are u s ed i n s ect i o n 1 0 4 (a)(2 ).
Deci s i o n wi ll b e en t eredfo r
res p o nd en t .