TAX COURT OPINION

Case: Jo Ann Ochi
Docket Number: 19672-08S
Judge: Colvin
Opinion Type: bench
Filed: 07/06/2009
Pages: 5

'gvt~~ '~-p - (~ 6~~ UNITED STATES TAX COURT WASHINGTON , DC 2021 7 JO ANN OCHI, ) Petitioner V . Docket No . 19672-085 . COMMISSIONER OF INTERNAL REVENUE , Respondent O R D E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it i s 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 Honolulu, Hawaii, on June 18, 2009, 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, decision will . be entered for petitioner A. (Signed) Joseph Robert Goeke Judg e Dated : Washington, D .C . July 6, 2009 SERVED JUL 15 2009 3 1 Bench Opinion by Judge Joseph Goeke June 18, 200 9 2 Ochi v . Commissioner Docket No . 19672-08 S 3 THE COURT : The Court has decided to render 4 oral findings of fact and opinion in this case, and 5 the following represents the Court's oral findings of 6 fact and opinion . The oral findings of fact and 7 opinion shall not be relied upon as precedent in any 8 other case . 9 This bench opinion is rendered pursuant t o 10 Tax Court Rule of Practice and Procedure 152 . 11 Hereinafter, Rule references are to the Tax Court 12 Rules of Practice and Procedure . 13 This case was heard pursuant to th e 14 provisions of § 7463 of the Internal Revenue Code in 15 effect when the petition was filed . Pursuant to § 16 7463(b), the decision to lie entered is not reviewable 17 by any other court . Hereinafter, section reference s 18 are to the Internal Revenue Code . 19 This is a deficiency case involving the yea r 20 2006 and Respondent's determination that $5,000 the 21 Petitioner received in settlement of a dispute with 22 Charles Schwab & Co . is taxable to the Petitioner a s 23 ordinary income . Petitioner maintains that the amount 24 was reimbursement for prior security losses or tha t 25 the amount should be offset against legal fees she Heritage Reporting Corporatio n (202) 628-4888 1 incurred in achieving the resolution with Charle s 2 Schwab, which fees she maintains were approximatel y 3 $5,000 . 4 In the stipulation filed relative to th e 5 trial of this case, Respondent concedes that the 6 determination in the notice of deficiency, including 7 self-employment tax in the amo nt of $134 and th e 8 related allowance of the self-employment tax deductio n 9 in the amount of $67, was in error because th e 10 unreported income as determined by Respondent was not 11 self-employment income to the Petitioner . 12 The remaining question for dispute i s 13 whether the remaining deficiency of $1,300 is properl y 14 taxable to the Petitioner or whether this amount is i f 15 not taxable income because it is offset by th e 16 deductions Petitioner claimed at trial or by the fac t 17 that the $ 5,000 was not ordina y income but rathe r 18 reimbursement for capital losses Petitioner had 19 previously sustained . 20 We first deal with Petitioner's assertion 21 that she's entitled to additional expenses relative to 22 legal fees . We find that the Petitioner has failed t o 23 substantiate any legal fees in excess of the amount s 24 which would have been the threshold for the allowance 25 of such fees given the amount of Petitioner's gros s Heritage Reporting Corporation (202) 628-4888 5 1 income . Therefore , we deny Petitioner ' s claim that 2 she is entitled to additional deductions for legal 3 fees . 4 Petitioner credibly testified that she lost 5 approximately $ 50,000 due to t~ades through a broker 6 of Charles Schwab . Petitioner s testimony in thi s 7 regard is substantiated by the settlement agreement 8 and general release which she signed at the time she 9 received the $5,000 settlement from Charles Schwab . 10 That release indicates that a dispute had arise n 11 between Charles Schwab and the Petitioner regardin g 12 options trading activity beginning in 1997 . 13 Respondent maintains that it is unclear fro m 14 the settlement agreement what was the precise natur e 15 of the payments made to the Petitioner and that the 16 payments should have been treated as reimbursement of 17 a tortlike claim for the failure of Charles Schwab to 18 fulfill its fiduciary obligations to the Petitioner . 19 While Respondent's interpretation of th e 20 agreement is one possible interpretation, we ar e 21 persuaded by Petitioner's testimony that her view o f 22 the amount she received at the time of the release i s 23 the more logical analysis of the recovery and that the 24 recovery .was in fact a reimbursement of a portion of 25 Petitioner's losses in prior years as a result o f Heritage Reporting Corporation (202) 628-1888 6 trades through Charles Schwab . Therefore, we find 2 that there is no taxable income to the Petitioner bu t 3 rather that the $5,000 in question should serve t o 4 reduce :Petitioner's capital lo s carryforward . 5 As a result of our determination, the 6 decision will be entered for Petitioner . 7 This concludes the Court ' s oral findings of 8 fact and opinion in this case . 9 (Whereupon , at 2 :35 p .m ., the bench opinion 10 in the above - entitled matter w~s concluded . ) 11 12 13 14 15 16 17 18 19 20 21 2 2 23 24 25 Heritage ReportinglCorporation (202) 628-4888