T.C. Summary Opinion 2003-145

UNITED STATES TAX COURT

SHERIANNE S. COTTERELL, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 5912-02S. Filed October 1, 2003.

Sherianne S. Cotterell, pro se.

Andrew R. Moore, for respondent.

PAJAK, Special Trial Judge: This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed. Unless otherwise

indicated, section references are to the Internal Revenue Code in

effect for the year in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure. The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.
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Respondent determined a deficiency of $2,800 in petitioner’s

1999 Federal income tax. This Court must decide whether

petitioner must include proceeds from a legal settlement in gross

income.

This case was submitted fully stipulated pursuant to Rule

122. All of the facts stipulated are so found. Petitioner

resided in Concord, California, at the time she filed her

petition.

On her 1999 Federal income tax return, petitioner did not

report $10,000 from settlement proceeds. Respondent determined

that petitioner was required to report this $10,000 as income.

During 1999, petitioner received $10,000 in settlement (the

settlement proceeds) of a dispute between petitioner and a Salt

Lake City, Utah, television station (the television station). 

The dispute arose out of a 1998 television news report (the news

report) concerning petitioner’s role as a court-appointed monitor

of a consent decree following a civil rights class action

involving the State of Utah’s child welfare system. The news

report contained statements that petitioner believed were false

and defamatory. Petitioner and her three children also believed

they were subject to harassment and embarrassment as a result of

the news report.

Petitioner engaged in several discussions with the

television station’s counsel regarding the potential legal claims
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of petitioner and her children. No complaint was filed in court.

During 1999, petitioner individually entered into a

Settlement Agreement and Release of All Claims (the settlement

agreement) with the owner and operator of the television station

and the reporter involved in the news report. Petitioner

received the settlement proceeds pursuant to the settlement

agreement.

Section 61(a) provides that gross income includes all income

from whatever source derived unless excludable by a specific

provision of the Code. Section 104(a)(2) excludes from gross

income amounts received for personal physical injuries or

physical sickness. Nothing in the record indicates, and

petitioner does not contend, that the settlement proceeds are for

personal physical injuries or physical sickness. Rather,

petitioner contends that the settlement proceeds are for “claims

on behalf of [her] children and [her]self” and that respondent

“improperly attributed the income to [petitioner] rather than

[petitioner’s] children.” Petitioner “believe[s] the entire sum

is properly [her] children’s income”.

There is no support in the record for petitioner’s

characterization of the settlement proceeds as her children’s

income. Petitioner has no written documentation to show that the

children were to be considered as parties to the settlement. The

settlement agreement specifically listed petitioner individually
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as a party, not her children. (The settlement agreement is

governed by Utah law. Under Utah law, petitioner would have been

precluded from settling her children’s potential claims without

court approval. Hawkins v. Peart, 37 P.3d 1062 (Utah 2001)). 

The settlement agreement was signed by petitioner individually. 

The check for the settlement proceeds was made payable to

“Sherianne Cotterell”. A Form 1099-MISC, Miscellaneous Income,

was issued by the television station to petitioner as nonemployee

compensation. Petitioner did not contact the television station

to request that the Form 1099-Misc be reissued to any other

party. None of petitioner’s three children filed a 1999 income

tax return or otherwise reported as income any of the $10,000

settlement proceeds. Petitioner deposited the $10,000 settlement

proceeds into a bank account in her name. Petitioner had the

power to dispose of the $10,000 settlement proceeds as she deemed

necessary. We have no choice on this record but to sustain

respondent’s determination.

Reviewed and adopted as the report of the Small Tax Case

Division.

Decision will be entered

for respondent.