TAX COURT OPINION

Case: Chanelle S. Coleman
Docket Number: 11752-16
Judge: Kerrigan
Opinion Type: bench
Filed: 05/11/2017
Pages: 6

UNITED STATES TAX COURT WASHINGTON, DC 20217 CZ CHANELLE S. COLEMAN, Petitioner(s), v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. ) ) ) ) 11752-16. ORD 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 the pages of the transcript of the trial in the above case before Judge Kathleen Kerrigan at Houston, Texas on April 24, 2017, containing her oral findings of fact and opinion rendered at the conclusion of the trial session at which this case was heard. In accordance with the oral findings of fact and opinion, a decision will be entered under Rule 155, Tax Court Practice and Procedure. (Signed) Kathleen Kerrigan Judge Dated: Washington, D.C. May 11, 2017 SERVED May 12 2017 Capital Reporting Company 3 1 Bench Opinion by Judge Kathleen Kerrigan 2 April 28, 2017 3 Chanelle S. Coleman v. Commissioner 4 5 6 Docket No. 11752-16 The Court has decided to render in this case the following as its oral Findings of Fact and 7 Opinion, which shall not be relied upon in any other 8 9 case. This Bench Opinion is made pursuant to the authority granted by section 7459(b) of the Internal 10 Revenue Code, and Rule 152 of the Tax Court Rules of 11 Practice and Procedure. Unless otherwise indicated, 12 all section references are to the Internal Revenue 13 14 15 16 17 18 19 20 Code in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. By notice of deficiency dated February 8, 2016, the Internal Revenue Service determined a deficiency in petitioner's Federal income tax for tax year 2013, and an accuracy-related penalty under section 6662(a). The issue for consideration is 21 whether a payment petitioner received pursuant to a 22 23 24 25 settlement agreement is taxable income. Respondent conceded the accuracy-related penalty. Trial of this case was conducted on April 24, 2017, in Houston, Texas. Petitioner represented 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 herself, and Lewis A. Booth and Courtney M. Hill represented respondent. The parties' Stipulation of Facts was admitted into evidence along with the attached exhibits. We find the following facts: Findings of Fact Petitioner resided in Houston when she timely filed her petition. The deadline for filing a petition was extended as part of disaster relief assistance. During tax year 2013 petitioner was employed. She received a settlement of $71,350 from her employer as a result of a sexual harassment complaint. Pursuant to the confidential settlement agreement, petitioner received a lump sum payment of $35,675, for which she received a Form 1099-MISC, 16 Miscellaneous Income. The remaining $35,675 was paid 17 directly to her as separation and future pay. 18 Petitioner did not include the lump sum of $35,675 19 20 21 22 23 24 25 for which she received a Form 1099 on her 2013 Form 1040, U.S. Individual Income Tax Return. The confidential settlement agreement provided that the lump sum of $35,675 paid to petitioner represented compensatory damages, including emotional distress. Opinion Generally, a taxpayer bears the burden of 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 8 9 proving the Commissioner's determinations in a notice of deficiency are erroneous. Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933). Petitioner has neither claimed nor shown that she meets the specifications of section 7491(a) to shift the burden of proof to respondent as to any relevant factual issue. Gross income generally includes all income from whatever source derived. Sec. 61(a). The 10 definition of gross income is broad in scope, while 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 exclusions from income are narrowly construed. Commissioner v. Schleier, 515 U.S. 323, 328 (1995). 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 in 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). 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 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). Petitioner does not dispute that she received the lump sum payment. Petitioner contends that the sexual harassment caused physical ailments. She further contends that the settlement proceeds should not be taxable because of the physical effects of the harassment. Petitioner did not provide any evidence to show that any portion of the settlement proceeds were used for amounts paid for medical care attributable to emotional distress. Pursuant to the settlement agreement, the lump sum that petitioner received was for compensatory damages, including emotional distress. 18 Accordingly, the lump sum payment of $35,675 that 19 20 21 22 23 24 25 petitioner received in 2013 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. A decision will be entered under Rule 155. This concludes the Court's Oral Findings of Fact and Opinion in this case. 866.488.DEPO www.CapitalReportingCompany.com 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 Capital Reporting Company (Whereupon, at 9:10 a.m., the above- entitled matter was concluded.) 7 866.488.DEPO www.CapitalReportingCompany.com