TAX COURT OPINION

Case: Renaee Nicole Henry
Docket Number: 17401-09S
Judge: Colvin
Opinion Type: bench
Filed: 10/05/2010
Pages: 8

UNITED STATES TAX COURT WASHINGTON, DC 20217 RMM RENAEE NICOLE HENRY, Petitioner, v. ) Docket No. 17401-09 S. COMMISSIONER OF INTERNAL REVENUE, Respondent O R D E R 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 transcript of Laro at Chicago, findings of hearing. fact and opinion rendered at the hearing in the above case before Judge David IL, on September 23, 2010, containing her oral the pages of the the conclusion of the In accordance with the oral findings of fact and opinion, an appropriate Decision will be entered. (Signed) David Laro Judge Dated: Washington, D.C. October 5, 2010 SERVED Oct 07 2010 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 3 Bench Opinion by Senior Judge David Laro Docket No. 17401-095 September 23, 2010 Renaee Nicole Henry v. Commissioner The Court has decided to render Oral Findings of Fact and in this case. This bench opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Codegand Rule 152 of the Tax Court Rules of Practice and Procedure. Petitioner refers to.Renaee:Nicole Henry, section references are to the Internal Revenue Code, and rule references are to the Court's Rules of Practice and Procedure. Petitioner petitioned the Court to review respondent's determination of a $39,564 deficiency in her 2006 income tax return. Petitioner resided in Illinois when the petition was filed. Background Petitioner was employed by Pepsi-Cola General Bottlers Inc. (herein, Pepsi Bottling) prior to 2003. Sometime in or around 2003, the Equal Employment Opportunity Commission (herein, EEOC) filed a complaint against Pepsi Bottling in the United States District Court for the Northern District of Illinois, Eastern Division, alleging sexual harassment and retaliation. Petitioner intervened as a plaintiff Heritage Reporting Corporation (202) 628-4888 4 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 in that lawsuit. - The EEOC and Pepsi Bottling agreed to settle the case, and, on January 18, 2006, they entered into a consent decree. The consent decree provided that Pepsi Bottling would pay to petitioner $400,000 as follows: (1) $225,000 in attorney fees; (2) $43,000 in back-pay; and (3) $132,000 in compensatory damages. With respect to the compensatory damages, the consent decree provided that Pepsi Bottling was;to issue to petitioner a Form 1099 and withhold no tax. Petitioner alleges in the petition that she did not receive Form 1099 from Pepsi Bottling Petitioner asserts that she contacted the Internal Revenue Service (herein, the IRS) on two separate occasions to determine the proper Federal tax treatment of the compensatory damages Petitioner believed that each IRS representative advised her that the compensatory damages were not taxable. On February 19, 2007, petitioner filed a Form 1040, U.S. Individual Income Tax Return, for the 4 year 2006. Petitioner did not report any portion of the compensatory damages as taxable on her 2006 Form 1040, nor did she report $8 in dividends received from Pepsi Americas Inc. (herein, Pepsi). Also on that .Form 1040, petitioner reported that à flood destroyed Heritage Reporting Corporation (202) 628-4888 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 5 various personal and household effect ' a fair market value of $17/,000. ' ' .in e company reimbursed her $5,000, and after making multiple adjustments, petitioner claimed a net casualty loss of $4,325. On April, 20, 2009, respondent issued to petitioner a notice of deficiency, and on July 20, 2009; petitioner petitioned the Court for a redetermination of that liability. A trial was held in Chicago, Illinois, on September 20 2010, and petitioner was the only witness to testify. I. Overview Discussion We decide whether petitione (1) may exclude from gross income $132, 000 in compensatory damages received from the settlement of a sexual harassment lawsuit; (2) must include in gross in¢ome $8-in dividends received from Pepsi; and (3) may deduct a $4,325 casualty loss which petitioner sustained following a flood in her home. We hold for respondent as to all o issues. II. Burden of Proof The Commissioner's determinations in a notice of deficiency are presumed correct and a taxpayer must prove those determinations wrong in Heritage Reporting Corporation (202) 628-4888 6 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 order to prevail. Rule 142 (a)'j Glass v. Commissioner, 124 T.C. 258, 276 (2005). Pursuant to section 7491(a), the burden of proof as to factual matters may shift to the Commissioner under certain circumstances. Petitioner has not alleged'that section 7491(a) applies nor has she established her compliance with the substantiation and recordkeeping or cooperation requirements of the Internal Revenue Code. See sec. 7491(a) (2) (A) and (B). Petitioner therefore bears the burden of proof. Rule 142(a). III. Compensatory Damages Petitioner alleges that the compensatory damages she received from her sexual harassment lawsuit are excluded from gross income by virtue of section 104(a) (2). We disagree. Section 61(a) provides that gross income includes all income from whatever source-derived. The definition of gross income is broad in scope while - exclusions from income are narrowly construed. Commissioner v. Schleier, 515 U.S. 323., 328 (1995) ; United States v. Burke, 504 U.S. 229, 233 (1992). Nonpunitive damages received on account of personal physical injuries or physical sickness may be excluded from income. Sec. 104(a) (2). In order to qualify for income exclusion under section 104(a) (2), Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 il 12 13 14 15 16 17 18 19 20 21 22 23 24 25 7 the underlying cause of action must be based in tort or tort-type rights, and the proceeds must be damages received on account of personal physical injury or physical sickness. Commissióner v. Schleier, supra, at 337. Emotional distress is not treated as a physical injury or physical sickness, except for damages not in excess of the cost of medical care attributable to that emotional distress. Sec. 104 (a) (flush language). Petitioner testified at trial that she suffered emotional distress but did not experience physical injury or sickness following the purported sexual harassment she experienced at Pepsi Bottling. Based on that testimony, we must finds that petitioner does not meet the criteria for exclusion of any part of the compensatory damages under section 104(a) (2).. Thus, in accordance with section 61 the $132,000 payment must be included in petitioner's gross income for the 2006 tax year. Se'e Save v. Commissioner, T.C. Memo. 2009-209; Sanford v. Commissioner, T.C. Memo. -158. 00$ IV. Casualty Loss Petitioner contends that she is entitled to a deduction for the fair market value of the personal and household effects which were destgoyed in the 2006 Heritage Reporting Corporation (202) 628-4888 i 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 8 flood. We disagree. A taxpayer may generally deduct losses arising from fire, storm, shipwreck, or other casualty in the taxable year during which the loss is sustained. Secs. 1JáŠ (a), (c) (3). Petitioner bears the burden of proving a deductible los and she must establish the extent and amount of that loss. Citron v. Commissioner, 97 T.C. 200, 207 (1991). At trial, petitioner admitted into evidence photographs which support the existence of a casualty loss, but the extent and amount of those damages, as well as the amounts which were compensated for by insurance, fro C (evt- ar. Accordingly, petitioner has not proven that is she may deduct the claimed casualty losses. Denial of the casualty loss is also proper for an alternative reason. Casualty losses may only be deducted to the extent that they exceed $100 and are greater than 10 percent of adjusted gross income. Secs. 165(h) (1) -and (2). Here, the increase to petitioner's adjusted gross income by virtue of including the compensatory damages prevents the casualty losses from exceeding 10 percent of petitioner's adjusted gross income. Petitioner therefore is not entitled to take a deduction for her casualty in any event. See Barmes v. Commissioner, Heritage Reporting Corporation (202) 628-4888 f 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 T.C. Memo. 2000-254, affd. 12 Fed. Appx. 415 (7th Cir. 9 2001) . V. Dividends Petitioner does not dispute that she received $8 in dividends from Pepsi during 2006, and we conclude that she was required to report those dividends as income . Sec . 61 (a) (7 ) . VI. Conclusion We conclude that petitioner is liable for the deficiency determined by respondent. Decision will be entered for respondent. This concludes the Court's Oral Findings of Fact and Opinion in this case . (Whereupon, at 9:50 a.m., the bench opinion in the above-entitled matter was concluded.) // // / // // // // // / // Heritage Reporting Corporation (202) 628-4888