TAX COURT OPINION

Case: Toni C. Perry
Docket Number: 4647-25
Judge: Nega
Opinion Type: bench
Filed: 03/25/2026
Pages: 8

TONI C. PERRY, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent United States Tax Court Washington, DC 20217 Docket No. 4647-25. ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of Court shall transmit herewith to petitioner and to respondent a copy of the pages of the transcript in the above-referenced case before Judge Joseph W. Nega at Hartford, Connecticut, on February 18, 2026, containing his oral findings of fact and opinion rendered at the conclusion of the trial. In accordance with the oral findings of fact and opinion, an appropriate decision will be entered. (Signed) Joseph W. Nega Judge Served 03/25/26 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 Bench Opinion by Judge Joseph W. Nega February 18, 2026 3 Toni C. Perry v. Commissioner of Internal Revenue Docket No. 4647-25 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 other case. The oral findings of fact and opinion are made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code and Tax Court Rule 152. Unless otherwise specified, Rule references in this opinion are to the Tax Court Rules of Practice and Procedure, and section references are to the Internal Revenue Code, in effect at all relevant times. By Notice of Deficiency dated January 21, 2025, respondent determined a deficiency in the Federal income tax of petitioner for tax year 2022 and determined that petitioner is liable for an accuracy-related penalty under section 6662(a). Respondent has conceded the accuracy- related penalty, and petitioner has conceded $4,275 of the deficiency related to certain wages. The only remaining issue is whether $29,207 that petitioner received pursuant to a settlement agreement with her former employer is 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 taxable income. 4 Trial of this case was conducted on February 17, 2026, in Hartford, Connecticut. Petitioner was represented by Sara V. Spodick and Lisa Ellen Perkins. Respondent was represented by Daniel C. Chavez and Michael V. Nanfito. On the evidence before us, and using the burden- of-proof principles explained below, the Court finds the following facts: FINDINGS OF FACT Petitioner resided in Connecticut at the time she filed her petition in this case. Petitioner began her employment with her former employer Amazon.Com Services, LLC (Amazon), sometime in 2017. She worked in a several roles that culminated in a "picker" position, which involved substantial physical activity. While in that role, sometime during July 2020, petitioner suffered an injury to her back and sought medical treatment at an emergency room. Based on the advice she received, she sought to exercise certain rights afforded to her under the Family Medical Leave Act (FMLA) of 1993, 29 U.S.C. section 2601, and other state law protections. Sometime after receiving approval from Amazon for an FMLA-related leave of absence petitioner was terminated. She subsequently filed suit raising claims 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 that she was terminated in violation of state law workers' 5 compensation and disability discrimination laws and in violation of the FMLA. During tax year 2022, petitioner settled the dispute with Amazon. The settlement agreement recites that it is a release of all claims related to petitioner's employment with Amazon. Petitioner testified that she did not understand the nature of the settlement and that her attorney failed to explain it to her. She also testified that she could not recall if she had reviewed the entire settlement and thought that the amount of the settlement was different. Petitioner acknowledged seeing the signature page and recognizing her signature appearing there. On that page it states: "Employee acknowledges: ... that Employee has read the terms of this Agreement, and that Employee understands its terms and effects...." OPINION Generally, the Commissioner's determinations in a notice of deficiency are presumed correct, and the taxpayer bears the burden of proving those determinations erroneous. Rule 142(a)(1); Welch v. Helvering, 290 U.S. 22 111, 115 (1933). 23 24 25 Gross income generally includes all income from whatever source derived. Sec. 61(a). The definition of gross income is broad in scope, while the exclusions from 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 income are narrowly construed. Commissioner v. Schleier, 6 515 U.S. 323, 328 (1995). Taxpayers seeking an exclusion from gross income must demonstrate they are eligible for the exclusion and "bring themselves within the clear scope of the exclusion." Dobra v. Commissioner, 111 T.C. 339, 349 n.16 (1998). Damages (other than punitive damages) received on account of personal injuries or physical sickness may generally be excluded from income. Sec. 104(a)(2). For damages to be excluded under this provision, the underlying cause of action must be based upon tort or tort-type rights, and the proceeds must be damages received on account of personal injury or sickness. Commissioner v. Schleier, 515 U.S. at 337. When damages are received pursuant to a settlement agreement, the nature of the claim that was the actual basis for settlement controls whether those damages are excludable pursuant to section 104(a)(2). See United States v. Burke, 504 U.S. 229, 237 (1992). Emotional distress is not treated as a personal physical injury or physical sickness, except for damages not in excess of the amount paid for medical care attributable to emotional distress. Sec. 104(a) (flush language). The complaint filed on petitioner's behalf raises four claims. Each claim asserts the same damages 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 sought: that petitioner "sustained lost wages and benefits 7 of employment, has been deprived of the benefits of gainful employment into the future, has sustained substantial emotional distress, and has incurred or will incur attorneys' fees and costs." The damages other than emotional distress are clearly outside the scope of section 104(a)(2), and the complaint does not allege any medical treatment for emotional distress as damages- rendering all of the damages alleged by plaintiff wholly outside the scope of section 104. Pursuant to the settlement agreement, the lump sum that petitioner received was for a general release of all claims except for those related to her Connecticut Workers' Compensation Commission Claim No. 100223150. Petitioner presented evidence and testimony of physical injuries unrelated to this settlement and many predating the alleged date of the back injury she claims underlies the settlement. Petitioner did not testify or provide any evidence to show that any portion of the settlement proceeds were used or designated for amounts paid for medical care attributable to those injuries. Petitioner's credible testimony exhibits confusion or at least a misunderstanding of her previous litigation resulting in the proceeds of the settlement at issue in this case. It is not Petitioner's understanding 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 which controls here. The terms of the settlement are 8 clear. There is not enough of a nexus to underlying physical injury to convert this case from a wrongful termination case to a section 104(a)(2) case. Pursuant to the settlement agreement, the lump sum that petitioner received was for a general release of claims related to her termination of employment, at most including some attendant untreated emotional distress. Accordingly, the lump sum payment of $29,207 that petitioner received in tax year 2022 is not excludable from her gross income pursuant to section 104(a)(2). See McGowen v. Commissioner, T.C. Memo. 2011-186; Shelton v. Commissioner, T.C. Memo. 2009-116. Petitioner's counsel argued that petitioner could just as easily sued for workers' compensation. But see CONN. GEN. STAT. sec. 31-284(a) (2025); Suarez v. Dickmont Plastics Corp., 639 A.2d 507, 510 (Conn. 1994). They then continued that this somehow supports their position that the settlement is not taxable under section 104. While the Court takes no position on the proper tax treatment of this alternative, it is clear that the lawsuit settled here did not give rise to proceeds that are eligible for exclusion under section 104(a)(2). We have considered all arguments made by the parties, and, to the extent not mentioned above, we conclude that they are moot, irrelevant, or without merit. 9 This concludes the Court's oral findings of fact and opinion in this case. To reflect the foregoing, an appropriate decision will be entered. (Whereupon, at 2:49 p.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