TAX COURT OPINION

Case: Edmund T. MacMurray
Docket Number: 6596-06S
Judge: Foley
Opinion Type: summary
Filed: 07/11/2007
Pages: 6

T .C . Summary Opinion 2007-11 8 UNITED STATES TAX COUR T RDE - D I F.tr1_ . ~i j ! ADM . IF~R~:CO . I ra: EDMUND T . MACMURRAY, Petitioner v . COMMISSIONER OF INTERNAL REVENUE, Respondent* JUDGE roleyriLE s Docket No . 6596-06S . Filed July 11, 2007 . Edmund T . MacMurrav , pro se . Michael Bitner , for respondent . FOLEY, Judge : This case was heard pursuant to the provisions of section 74631 of the Internal Revenue Code in effect when the petition was filed . Pursuant to section 1463(b) , I the decision to be entered is not reviewable by any other court , This opinion replaces our previously filed opinion, T .C . Summary Opinion 2007-90, which was withdrawn by order on July 6, 2007 . 1 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the year in issu e SERVED JUL11 \2007 - 2 - and this opinion shall not be treated as precedent for any othe r case . The issues for decision are whethe r petitioner may exclud e from income a settlement award relating to a lawsuit and i s liable for a section 6662,(a) accuracy-related penalty . Backgroun d Petitioner is a licensed attorney in the State of Michigan ; a I Prior1to 2001, he worked, for 13 years, as an employee for th e Internal Revenue Service . In 2001, petitioner was an employee o f Duro-Last Roofing, Inc . (Duro-Last), a roofing company base d Saginaw, Michigan . On September 11, 2001, Duro-Last terminated, petitioner's employment . In response, on December 5, 2001 , petitioner filed a Complaint and Jury Demand (the complaint) wit h the Circuit Court of Saginaw County, Michigan . The complaint alleged that Duro-Last had violated the State of Michigan Whistleblower's Protection Act, and that, based on Duro-Last's { wrongful actions, petitioner suffered damages . Subsequent to the filing of the complaint, the matter was referred to mediation . In 2003, as a result of mediation, Duro -' Last paid petitioner $80,000 . In addition to its payment, Dur o Last issued petitioner a Form 1099-MISC, Miscellaneous Income . Petitioner attached the Form 1099-MISC to his Form 1040, U .S . Individual Income Tax Return, but did not include the settlemen t award in gross income . On January 3, 2006, respondent sent petitioner a notice of, 3 - .deficiency relating to 2003 . Respondent determined that petitioner failed to report the settlement award and was liable for a section 6662(a) accuracy-related penalty . On April 5, 2006, petitioner, while residing in Boynton Beach, Florida, filed his petition with the Court . Discussion Petitioner contends that the settlement award he received was compensation for personal injuries and, pursuant to section 104(a)(2), is excludable from gross income . Respondent contends that the settlement award should have been included in 'petitioner's gross income . Section 104(a)(2) provides that gross income does not include "the amount of any damages * * * received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness" . Thus, an amount may be excluded from gross income only when it was received both : (1) Through prosecution or settlement of an action based upon tort or tort type rights, and (2) on account of personal injuries or sickness . See Commissioner v . Schleier , 515 U .S . 323, 336-337 (1995) ; sec . 1 .104-1(c), Income Tax Regs . Petitioner contends that his settlement award meets the requirements of section 104(a)(2) . Petitioner, however, did not incur any medical expenses, consult .with'a medical professional, - 4 - or inform Duro-Last of any physical injury or sickness . I n short, petitioner's settlement award was not received on account of physical injury and is therefore includable in his gros s income . ' Respondent in his notice of deficiency' determined that petitioner was liable for a section 6662(a) accuracy-related penalty . Section 6662(a) imposes a penalty equal to 20 percen t of the amount of any underpayment attributable to a substantial, . understatement of income tax . Sec . 6662(b) (2) . An understatement is the amount by which the correct tax exceeds the tax reported on the 'return . Sec . 6662(d) (2) (a) . The understatement is substantial if it exceed Js the greater of $5,000 or 10 percent of the tax required to be shown on the return . Sec . 6662 (d)(1)(A)(i) and (ii) . An understatement is reduced by the portion of th e understatement that is attributable to th e tax treatment of a n item(cid:127)for which there is substantial authors ty or with respect t o which there is adequate disclosure and a reasonable basis ., See sec . 6662(d)(2)(B) ; sec . 1 .6662-4(a), (e)(2)(i), Income Tax Regs . Reasonable basis is a "relatively . high standard of tax reporting, that is, significantly higher than not frivolous or not patentl y improper ." Sec . 1 .6662-3(b)(3), Income Tax Regs . The reasonabl e 2 Sec . 7491(a) is inapplicable because petitioner failed to introduce credible evidence within the meaning of sec . 7491(a)(1) . - 5 - basis standard is not satisfied by a return position that i s merely arguable or a colorable claim . Id . Petitioner di d disclose the receipt of his settlement award by attaching th e Form 1099-MISC and an explanatory-addendum to his return . He did not, however, have a reasonable basis for, his position . Thus, a reduction in the understatement, for purposes of the accuracy- related penalty, is not warranted . Section 6664(c)(1) provides that no .penalty shall be imposed if a taxpayer demonstrates that there was reasonable cause for the underpayment and the taxpayer acted in good faith . The determination of whether. a taxpayer acted with reasonable cause and in good faith depends upon the facts and circumstances, including the experience, knowledge, and education of the taxpayer . See sec . 1 .6664-4(b)(1), Income Tax Regs . Petitioner maintains that he attached the Form 1099-MISC to his return as "a good-faith effort to show that * * * [he] had received something that wasn't subject to tax ." Petitioner, a lawyer who had previously worked with the Internal Revenue Service, failed, however, to make even a :minimal effort to determine whether his position was correct . In short, he did not act with reasonable cause when he failed to report his settlement award as taxable income . Accordingly, he :is liable for th e section 6662(a) accuracy-related penalty . Contentions we have not addressed are irrelevant, moot, or ' - 6 - meritless . To reflect the foregoing, Decision will be entere d for respondent . I