TAX COURT OPINION

Case: Randall Pittman
Docket Number: 28318-12
Judge: Goeke
Opinion Type: bench
Filed: 03/30/2015
Pages: 14

CMS UNITED STATES TAX COURT WASHINGTON, DC 20217 RANDALL PITTMAN, Petitioner(s), v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 28318-12. ) ) ) ) ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Joseph Robert Goeke at Los Angeles, California on March 11, 2015, containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, a decision will be entered for respondent. (Signed) Joseph Robert Goeke Judge Dated: Washington, D.C. March 30, 2015 SERVED Mar 31 2015 Capital Reporting Company 3 1 Bench Opinion by Judge Joseph Robert Goeke 2 March 11, 2015 3 Randall Pittman v. Commissioner 4 5 6 7 8 9 Docket No. 28318-12 THE COURT: THE COURT HAS DECIDED TO RENDER ORAL FINDINGS OF FACT AND OPINION IN THIS CASE AND THE FOLLOWING REPRESENTS THE COURT'S ORAL FINDINGS OF FACT AND OPINION. THE ORAL FINDINGS OF FACT AND OPINION SHALL NOT BE RELIED UPON AS PRECEDENT IN ANY 10 OTHER CASE. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 This opinion is rendered pursuant to the authority provided in Internal Revenue Code, section 7459(b). Hereinafter, section references will be to the Internal Revenue Code in effect for the taxable year 2010. The Court also relies upon Rule 152 of the Tax Court Rules of Practice and Procedure as authority for rendering this Oral Findings of Fact and Opinion. Hereinafter, rule references will be to the Tax Court Rules of Practice and Procedure. Pursuant to Rule 152(b), this Oral Findings of Fact and Opinion shall be served upon the parties in this case by the Clerk of the Court. The present case is before the Court based upon the timely filing by the Petitioner of a petition after Respondent issued a Notice of 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 Deficiency on September 24th, 2012. The Court has 4 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 jurisdiction to hear such a matter pursuant to | section 6512(a). The Notice of Deficiency issued to the Petitioner asserted a deficiency in federal income tax in the amount of $3,428 for the year 2010. At the time the Petitioner filed his petition in this case, he was a resident of the state of California. The procedural history of this case has some significance relative to its current posture. The case was originally the subject of a motion for summary judgment filed by Respondent, which was set for hearing on September 8, 2014. At that time, and during two hearings held on that day, Petitioner confirmed certain facts as undisputed, but maintained that the Court should deny Respondent's motion for summary judgment on two grounds. First, that the 17 Petitioner was continuing to pursue legal action 18 19 20 21 22 23 24 25 against Bank of America, and that, at the time the payments were made to him, they were paid for physical injuries, because of damages he had incurred to his kidneys as a result of emotional distress. Although the documents provided by Respondent in support of the motion for summary judgment were consistent with Respondent's position and consistent with the information documents 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 8 9 provided to the Petitioner by Bank of America and the other payor, the Court entertained Petitioner's argument that he could demonstrate that physical injuries played a role in the payments he received as a grounds to deny the motion for summary judgment, based upon the facts the Petitioner orally alleged at the hearing on September 8, 2014, although, at that hearing, Petitioner did not provide any documents to support the fact that he had kidney disease, or more 10 importantly, that kidney disease played a role as a 11 motivation for the payments he received in 2010. The 12 Court, however, deemed the facts as most favorably 13 construed for the Petitioner to be such that the 14 motion for summary judgment should be denied; 15 16 17 18 19 20 21 22 23 24 however, the Court specifically ordered that there would be a subsequent trial and it would focus on the purpose of the $30, 000 payment r-eceived Petitioner received in 2010. The Court's order of September 11th, 2014, provides as follows: Petitioner should be allowed to prove that the settlement agreement mischaracterizes the $30,000 he was supposed to receive, but he will have the burden of proof in that regard. Reviewing the available evidence in the most favorable light to 25 Petitioner, there is at least some question about the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 basis of the settlement. The order further provides that: "Ordered 3 , that this case is set for trial at a Special Session 4 5 6 7 8 9 10 11 12 of the Court scheduled to commence March 9, 2015, at 10:00 a.m." When the case was called on March 9, 2015, at 10:00 a.m., Petitioner alleged that the Court should continue the case, although he had not filed a motion for continuance. He asserted that on the same basis he had originally alleged as an alternative grounds regarding the motion for summary judgment, matters concerning his claims against Bank of America continue to be pending in the Federal 13 District Court and the Court of Appeals for the Ninth 14 Circuit. At his hearing on September 8th, 2014, the 15 Court explained to the Petitioner that subsequent 16 17 18 19 20 21 22 23 24 25 litigation involving the claim against Bank of America would not be the basis to defer his case, because the Court's jurisdiction was to determine the actual tax liability of the Petitioner for the calendar year 2010, and that subsequent events would not impact that tax liability. Nevertheless, the Petitioner continued to make arguments that the Court should continue his case despite the fact that the Court had explained these arguments were without merit on September 8, 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 2014, and the fact that the Court had ordered the case set for trial on the specific purpose for the $30,000 payment the Petitioner received in 2010. Given Petitioner's failure to heed the 5 Court's prior advice and the clear instructions in 6 7 8 9 the Court's order of September 11, 2014, the Court denied Petitioner's oral motion for a continuance and proceeded to have a trial. The Court then addressed Respondent's 10 motion that facts be stipulated, pursuant to Rule 11 12 13 14 15 16 91(f) of the Tax Court Rules of Practice and Procedure, which provides that the parties should stipulate to the fullest extent possible the facts of the case, and that a party who felt the other party was recalcitrant in stipulating could file a motion before the Court. The Court granted Respondent's 17 motion that the facts stated in Respondent's Proposed 18 Stipulation of Facts and the exhibits attached 19 20 21 22 23 24 25 thereto should be admitted into the record, because these facts were not in dispute and Petitioner had previously agreed to these underlying facts orally at the hearing on September 8, 2014. Subsequently, the Court asked Petitioner if he wished to give testimony regarding his position relative to the purpose of the $30,000 payment in 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 2010. The Court also asked Petitioner whether he wished to introduce any additional documents to support his position that kidney disease was the underlying motivation for the payment. Petitioner declined to introduce any additional documents, nor to testify. So, the case is submitted to the Court based upon the facts as deemed stipulated, pursuant to the Court's ruling, that Respondent's motion for an order to show cause why facts in the evidence should not be accepted as established pursuant to Rule 91(f) would be granted, and that those facts in evidence would be accepted into the record. Regarding Petitioner's specific argument that the Court should continue the case pending the outcome of his numerous disputes with Bank of America in the District Court and in the Court of Appeals he Court notes that our jurisdiction is to determine tax liability and deficiencies as determined in the 19 Notice of Deficiency by Respondent and to address the 20 21 22 23 24 25 correctness of those liabilities on a calendar year or a taxable year basis. Section 441(a) provides taxable income shall be computed on the basis of the taxpayer's taxable year. Section 441(b) defines taxable year. And in the case of a calendar year taxpayer such as 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 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 the Petitioner, section 441(g) specifically provides that the taxpayer's taxable year shall be the calendar year. Given Respondent's determination that there is a deficiency for the calendar year 2010, our jurisdiction is to determine whether the Petitioner had the income as determined by Respondent in that calendar year. And the facts relative to that determination are based upon the events in that calendar year. Subsequent events are not relevant to determining the accuracy of Respondent's determination for the year 2010. We first turn to the facts of the case, based upon the records that have been entered into evidence and the previous admissions Petitioner made at the hearing on September 8, 2014. Petitioner timely filed a U.S. Individual Income Tax Return, Form 1040A, for the taxable year 2010. From February 2008 until July 2008, Petitioner was employed by Bank of America. He received the Bank of America employment through an employment agency, Randstad Professionals US, LP, formerly known as Sapphire Technologies, LLC. On or about July 2008, Petitioner was terminated as an employee of Bank of America. On September 5th, 2009, Petitioner filed an amended complaint for damages against Sapphire Technologies 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 and Bank of America. He listed the following causes of action in that amended complaint: wrongful termination; retaliation; wrongful constructive discharge; fraud and deceit; breach of implied contract; and labor code violations. The complaint is in the record, admitted at trial. On January 19, 2010, Petitioner entered into a settlement agreement with Sapphire Technologies and Bank of America. That settlement agreement is also admitted into the record. Under the settlement agreement, Petitioner received $30,000 from Sapphire Technologies and Bank of America in 2010. The settlement agreement specifically states that the $30,000 shall be allocated with 15,000 treated as wages, subject to applicable withholding, 16 and 15,000 treated as a payment for emotional 17 18 19 20 distress, which would be reported to the Petitioner and to the Internal Revenue Service via Form 1099. This is, in fact, how the transaction was reported by Bank of America and Sapphire Technologies, and 21 Petitioner received both those forms. He originally 22 23 24 25 reported the $15,000 as wages, but did not treat as income the $15,000 received for emotional distress. He subsequently argued that the entire 30,000 amount should have been exempt from income. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 1 2 3 4 5 6 7 The settlement agreement also stated, "Except for claims where civil penalties asserted in the PAGA lawsuit (civil penalties claim), plaintiff hereby irrevocably and unconditionally releases and forever discharges Sapphire and Bank of America and their respective parents, subsidiaries, affiliates, successors and assigns, insurers and reinsurers, and 8 all persons acting by, through, under, or in concert 9 with Sapphire and Bank of America, including, but not 10 11 12 13 14 15 limited to, all past and present employees, officers, agents, and directors, irrespective of whether the individuals were alleged to be or were acting within the course and scope of their employment, from any and all charges, complaints, cross-complaints, claims, and liabilities of any kind or nature, 16 whatsoever, known or unknown, suspected or 17 18 19 20 unsuspected, hereinafter referred to as claim or claims, which plaintiff, at any time, had or claims to have, or which plaintiff may have or claim to have arising from or in any way related to his employment 21 with Sapphire an assignment with Bank of America." 22 On January 7th, 2010, the United States 23 District Court approved the settlement agreement in a 24 25 settlement conference. Petitioner specifically agreed to the terms of the settlement during that 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 2 conference. In 2008, there's information in the record, 3 which would support a finding that the Petitioner 12 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 suffered from depression, insomnia, and panic attacks. This information does not in any way support a finding that the Petitioner suffered from kidney disease. Nor is there any other information in the record which would support a finding that the $30,000 payment made to the Petitioner in any way related to reimbursement to Petitioner for kidney disease. Petitioner alleged, as stated previously, that he could establish that kidney disease was a purpose for the payments he received. However, he declined to produce any evidence at trial, and he did not produce any evidence, as requested by the Court, in support of his position relative to the summary judgment motion that would show that he had kidney disease, and more importantly, that would show that kidney disease played a role in motivating the $30,000 settlement. Petitioner also received unemployment compensation from the State of California Employment Development Department in the amount of $6,894 in 2010. This amount is also disputed,by'Petitioner's income, but the basis for his argument is specious 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 and not worthy of any further comment by the Court. Petitioner does not argue, nor could we find that the burden of proof shifts to Respondent under either section 6201(d) or 7491(a). But given the documents in the record and Petitioner's prior statements at the hearing on September 8th, 2014, it is clear that the payments in dispute were made for the reasons stated on the information statements received by Petitioner as confirmed by the actual settlement agreement Petitioner executed with Bank of America and Sapphire Technologies. Therefore, the burden of proof plays no role in our determination. Damages that a taxpayer receives on account of personal physical injuries or physical sickness may generally be excluded from gross income under section 104(a)(2). The Supreme Court has held that a taxpayer intending to exclude damages from gross income under this provision must first satisfy two independent requirements, Commissioner v. Schleier, 513 (wiu'í U.S. 323 at 336-337 (2013). The taxpayer 21 must show that the underlying cause of action giving 22 23 24 25 rise to the recovery is based on tort or tort-type rights, and the taxpayer must also demonstrate that he or she received the damages on account of his or her personal physical injuries or physical sickness. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 14 1 2 3 4 5 6 7 8 9 Our Court has applied this two-pronged test in previous cases. See, e.g., plackwood v. Commissioner, T.C. Memo 2012-190. In the present circumstance, Petitioner previously asserted at the hearing on September 8, 2014, that the payment was the result of physical injuries for kidney disease. However, this assertion, which he later declined to support with his own testimony or any documents, is inconsistent 10 with the actual settlement agreement the Petitioner 11 12 13 executed contemporaneous with the payment and with the actual information documents issued pursuant to that settlement agreement. On the basis of the 14 weight of the contemporaneous evidence and the 15 Petitioner's failure to produce any contrary 16 17 18 19 20 21 22 23 24 25 evidence, we find that the parties intended the settlement proceeds to exclude damages for physical injuries, or at a minimum, not to include any damages for physical injuries. Given our prior holding relative to the employment tax payments Petitioner received in 2010, and the holding just stated regarding the settlement proceeds, we sustain Respondent's deficiency determinations for the taxable year 2010, and a decision will be entered for Respondent. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company This concludes the Court's Oral Findings of 15 Fact and Opinion in this case. (Whereupon, at 10:18 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