TAX COURT OPINION

Case: Kevin P. Cignetti
Docket Number: 27507-12L
Judge: Buch
Opinion Type: bench
Filed: 01/30/2014
Pages: 6

UNITED STATES TAX COURT WASHINGTON, DC 20217 KEVIN P. CIGNETTI, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 27507-12L. ) ) ) ) ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit with this order to both petitioner and respondent a copy of the pages of the transcript of the trial in this case that contain the oral findings of fact and opinion that was rendered at the trial session at Boston, Massachusetts. (cid:16)042 In accordance with the oral findings of fact and opinion, an appropriate decision will be entered. (Signed) Ronald L. Buch Judge Dated: Washington, D.C. January 30, 2014 SERVED FEB 0 3 2014 Capital Reporting Company 3 Bench Opinion by Judge Ronald L. Buch January 8, 2014 Kevin P. Cignetti v. Commissioner Docket No. 27507-12L THE COURT: The following represents the Court's oral findings of fact and opinion. The oral findings of fact and opinion may not be relied upon as precedent in any other case. This opinion is in conformity with Internal Revenue Code section 7459(b) and Rule 152(a) of the Tax Court Rules of Practice and Procedure. Any section references refer to the Internal Revenue Code or the Treasury regulations in effect during the year at issue, and Rule references are to the Tax Court Rules of Practice and Procedure. Background Respondent mailed Mr. Cignetti a statutory notice of deficiency determining a deficiency for his 2008 taxable year based on damages Mr. Cignetti received from a class action lawsuit. Mr. Cignetti received the statutory notice of deficiency but did not petition Tax Court for redetermination. Respondent assessed the deficiency and mailed 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Mr. Cignetti a Notice of Final Intent to Levy and 24 Notice of Your Right to a Hearing. Mr. Cignetti 25 requested a collection due process hearing at which 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 he disputed the underlying liability. He did not raise collection alternatives and he reiterated at trial that he was not challenging the collection action, but only challenging the underlying liability. Mr. Cignetti's dispute regarding the underlying liability is predicated on his position that the damages were awarded as a settlement, which is not a taxable event, and alternatively, if they are taxable he should be able to spread them over the years covered by the lawsuit. Mr. Cignetti was not challenging the proposed collection actions and because the underlying liability was not properly at issue, respondent issued a Notice of Determination Concerning Collection Action under Section 6320 and/or 6330 sustaining the proposed collection action. 18 Analysis 19 20 21 22 23 24 25 The Secretary must notify a taxpayer in writing of his or her right to request a hearing upon the filing of a notice of lien before the Secretary can levy against any property or right to property. Section 6320(a); sec. 6330(a)(1). When appropriate, hearings under sections 6320 and 6330 are held together. Sec. 6320(b)(4). The hearings are often 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 called collection due process, or CDP hearings. In a CDP hearing, a taxpayer may raise any issue relevant to an unpaid tax or proposed levy, including appropriate spousal defenses, challenges to the appropriateness of collection actions, and offers of collection alternatives. Sec. 6330(c)(2) (A). In addition, a taxpayer may challenge the existence or amount of the underlying tax liability if the taxpayer did not receive a statutory notice of deficiency or did not otherwise have an opportunity to dispute the liability. Sec. 6330(c)(2)(B). While the term "underlying liability" is not defined in sections 6320 or 6330, we have previously interpreted this term "to include any amounts owed by the taxpayer pursuant to the tax laws." Katz v. Commissioner, 115 T.C. 329, 339 (2000). Receipt of the statutory notice of deficiency means receipt in time to petition the Tax Court for redetermination. Sec. 301.6330-1(e)(3), Q&A-E2, Proced. & Admin. Regs. Therefore, it is "clear that section 6330(c) (2)(B) contemplates actual receipt of the notice of deficiency by the taxpayer." Tatum v. Commissioner, T.C. Memo 2003-115. Mr. Cignetti does not dispute that he received the statutory notice of deficiency in time to 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 petition this court. Accordingly, he cannot raise the underlying liability in this proceeding. Even if he could, it would not change the outcome. Gross income includes "all income from whatever source derived," subject to the exclusions defined in the Code. Sec. 61(a). This definition includes any accession to wealth. See Commissioner v. Glenshaw 8 Glass Co., 348 U.S. 426, 431 (1955). Section 104(a) 9 exempts from income damages (other than punitive 10 11 12 damages) received on account of personal injuries or physical sickness. There is no such exception for economic damages, such as those described by Mr. 13 Cignetti. As to when those damages should be 14 15 16 17 18 19 included into income, they are taxable upon receipt. See North American Oil Consol. V. Burnet, 286 U.S. 417, 424 (1932). Mr. Cignetti may not challenge his underlying liability. He received the statutory notice of deficiency and did not timely petition the Tax Court. 20 Accordingly, he is precluded from challenging the 21 22 23 underlying liability. Even if Mr. Cignetti was allowed to challenge the underlying liability, this challenge would not be successful. The damages that 24 Mr. Cignetti received are taxable because they are 25 not related to personal injury or sickness. Further, 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company they are taxable during 2008 because that is when he received the funds. 7 An appropriate order will be forthcoming. (Whereupon, at 9:53 a.m., the above- entitled matter was concluded.) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com