Court Opinion

ID: 9905122
Source: CourtListenerOpinion
Date Created: 2023-11-28 20:02:25.772295+00
Date Added: 2024-06-11T09:22:02.553835
License: Public Domain

United States Tax Court

                        T.C. Memo. 2023-142

                        LUMINITA ROMAN,
                            Petitioner

                                 v.

           COMMISSIONER OF INTERNAL REVENUE,
                       Respondent

                       GABRIEL L. ROMAN,
                           Petitioner

                                 v.

           COMMISSIONER OF INTERNAL REVENUE,
                       Respondent

                             —————

Docket Nos. 10878-16, 7671-17.              Filed November 28, 2023.

                             —————

Luminita Roman, pro se in Docket No. 10878-16.

Gabriel L. Roman, pro se in Docket No. 7671-17.

Andrea M. Faldermeyer, Christine A. Fukushima, and Alexander D.
DeVitis, for respondent.

       MEMORANDUM FINDINGS OF FACT AND OPINION

     TORO, Judge: In these consolidated cases, petitioners, Luminita
Roman and Gabriel L. Roman (collectively, the Romans), challenge the
Commissioner of Internal Revenue’s determinations that they had

                          Served 11/28/23
                                             2

[*2] deficiencies in income tax for their 2013 taxable years. After
concessions made by the parties, 1 five issues remain for our decision.

      First, we must decide whether a payment of $700,000 made in
2013 pursuant to a settlement agreement to which both Mr. Roman and
Ms. Roman were parties is excludable from the Romans’ gross income
under section 104(a)(2). 2 The Romans argue that the settlement
proceeds were paid on account of personal physical injuries or physical
sickness. The Commissioner disagrees. As we will explain below, we
agree with the Commissioner.

      Second, given our conclusion on the first issue, we must also
decide whether the $700,000 payment made under the agreement
should be allocated to both Mr. Roman and Ms. Roman, even though it
was paid only to Ms. Roman. As we discuss below, we find that the
income should be allocated 50/50 between the Romans.

       Third, given our conclusions on the first two issues, we must
decide whether Ms. Roman should be treated as having earned an
additional $350,000 for services rendered to Mr. Roman. On this issue,
we conclude that no additional income should be attributed to
Ms. Roman.

       Fourth, we must determine whether Ms. Roman is liable for an
accuracy-related penalty under section 6662 for an underpayment
attributable to a substantial understatement of income tax for the 2013
taxable year. On this point, we find for the Commissioner.

       Finally, we must determine whether Mr. Roman is liable for a
failure to timely file addition to tax under section 6651(a)(1) for the 2013
taxable year. On this point, we find for the Commissioner.

        1 Ms. Roman has conceded that she is liable for tax on $34 in unreported
interest income for her 2013 taxable year, and the Commissioner has conceded that
Ms. Roman can exclude $9,994 in wages previously reported on her taxable year 2013
return.
        2 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26 U.S.C. (I.R.C.), in effect at all relevant times, regulation references are
to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times,
and Rule references are to the Tax Court Rules of Practice and Procedure.
                                    3

[*3]                     FINDINGS OF FACT

       The parties have filed a First Stipulation of Facts, amended twice,
and Second, Third, and Fourth Stipulations of Facts, all with attached
Exhibits. We incorporate the parties’ Stipulations of Facts and the
attached Exhibits by this reference. We held a consolidated trial of these
cases at the Court’s Los Angeles, California, Special Trial Session, on
April 24, 2023. The Romans each resided in California when they timely
filed their respective Petitions to commence these cases.

I.     The Romans

      Mr. Roman is an individual deemed by the Social Security
Administration to be permanently disabled and has been diagnosed with
various conditions, including, among others, major depression,
paranoia, and prostate cancer. Mr. Roman also underwent spine
surgery in July 2010. Mr. Roman receives benefits under Medi-Cal, the
State of California’s Medicaid program.

       Mr. Roman and Ms. Roman were married until 2004. After their
marriage ended, the Romans continued living together, with Ms. Roman
serving as Mr. Roman’s live-in-care provider under California’s In-Home
Supportive Services program. Ms. Roman received compensation from
the State of California’s Department of Social Services for providing care
to Mr. Roman.

       Mr. Roman also receives government low-income rental housing
assistance. During the period relevant here, Ms. Roman was authorized
to reside with Mr. Roman under the rental assistance program.

II.    The Jefferson at Hollywood Apartments

      The Jefferson at Hollywood Apartments (Apartments) is an
apartment complex in Los Angeles, California. Mr. Roman executed a
lease agreement to move into the Apartments on October 5, 2010.
Mr. Roman also executed a Caregiver Addendum and Affidavit along
with the lease, which allowed Ms. Roman to reside in the apartment
with him as his “live-in caregiver.” The Romans moved into the
Apartments after Mr. Roman signed the lease. At that time, the
Apartments was owned by Jefferson at Hollywood, LP (Jefferson), and
managed by Greystar Real Estate Partners, LLC (Greystar).

     Shortly after moving to the Apartments, the Romans began
making various complaints to Jefferson and Greystar about the
                                     4

[*4] property, including expressing concerns about noise and
harassment and submitting requests for accommodations in connection
with Mr. Roman’s disabilities. Various legal actions ensued.

III.   Legal Actions Among the Romans, Jefferson, and Greystar

       A.    Federal Lawsuit

       Mr. Roman filed the first lawsuit against Jefferson and Greystar
in the U.S. District Court for the Central District of California on
April 22, 2011. Mr. Roman sought “injunctive relief and damages” from
Jefferson and Greystar “for discrimination, harassment, intimidation
and retaliation, in the rental of housing based on [his] disability.” The
complaint asserted:

       This action arises under the Federal Fair Housing
       Amendments Act of 1988, the California Fair Employment
       and Housing Act, the California Unruh Civil Rights Act,
       the California Disabled Person Act, the California Unfair
       Business Practice Act, the FIRST AMENDMENT to the US
       Constitution and also alleges negligence, slander and libel,
       invasion of privacy, constructive eviction, breach of implied
       covenant of quiet enjoyment, nuisance and intentional
       infliction of emotional distress.

       The District Court dismissed Mr. Roman’s complaint in its
entirety in July 2011. Specifically, the District Court dismissed his
federal law claims for failure to state a claim upon which relief can be
granted and declined to exercise supplemental jurisdiction over his state
law claims. Mr. Roman appealed this ruling to the U.S. Court of Appeals
for the Ninth Circuit. The Ninth Circuit affirmed the District Court’s
decision in October 2012, and the U.S. Supreme Court denied certiorari
in May 2013.

       B.    State Privacy Lawsuit

       The next lawsuit against Jefferson and Greystar was filed by
Ms. Roman in Los Angeles Superior Court on January 18, 2012. It
alleged violations of various provisions of the California Penal Code
relating to intercepted communications, negligence, and violations of a
common law right of privacy. In the complaint, Ms. Roman asserted
that Jefferson and Greystar “installed and/or caused to be installed
certain wire-tapping, eavesdropping and bugging equipment in its
employees’ or agents’ telephone lines” and that her calls to Jefferson and
                                    5

[*5] Greystar “were recorded monitored and/or eavesdropped upon
without [her] knowledge or consent.”        Ms. Roman subsequently
amended the complaint to allege only violations of a single provision of
the California Penal Code, § 632.7 (West 2012).

       On May 23, 2012, the Superior Court sustained Jefferson’s and
Greystar’s demurrer to Ms. Roman’s amended complaint without
granting her leave to amend her complaint. Ms. Roman appealed the
ruling to sustain the demurrer to the Court of Appeal for the State of
California. However, because such an order did not grant appeal rights,
the Court of Appeal ordered Jefferson and Greystar to obtain a dismissal
order for the lawsuit from the Superior Court and supply it to the Court
of Appeal. The Superior Court subsequently dismissed the case on
July 10, 2013. Ms. Roman appealed the Superior Court’s dismissal.

      C.     Unlawful Detainer Action

      The next legal move came from Jefferson, which on
October 3, 2012, filed an unlawful detainer action against Mr. Roman in
Los Angeles Superior Court. The unlawful detainer action was based
upon a 60-day notice to terminate Mr. Roman’s tenancy at the
Apartments. The Superior Court dismissed the case against Mr. Roman
in January 2013. Jefferson appealed the Superior Court’s dismissal of
the unlawful detainer, and Mr. Roman filed a cross-appeal as to the
Superior Court’s award of attorney’s fees, which Mr. Roman claimed
were inadequate.

      D.     California Fair Housing Complaint

       The Romans also filed a discrimination complaint against
Jefferson with the California Department of Fair Employment and
Housing (DFEH) on November 23, 2012. The Romans alleged in their
complaint that the 60-day notice to terminate residency and the related
unlawful detainer action (discussed above) were intended to retaliate
against them for their claims of discrimination regarding Mr. Roman’s
disabilities. In its response, Jefferson denied the Romans’ allegations of
discrimination and alleged that the 60-day notice to terminate residency
was based on lease violations concerning noise and the Romans’ conduct.

IV.   Sale of the Apartments to BRE Properties

       While the various legal actions described above were pending,
Jefferson sought to sell the Apartments. In the first quarter of 2013,
Jefferson retained the firm Cushman & Wakefield to help find a buyer
                                          6

[*6] for the property and negotiate its sale. In June 2013, BRE
Properties (BRE) was selected as the buyer for the Apartments. At the
time, BRE was engaged in litigation with the Romans, in which the
Romans alleged that BRE discriminated against them on account of Mr.
Roman’s disabilities when they attempted to rent a unit at one of BRE’s
other properties in 2009. 3

       BRE discovered that the Romans lived in the Apartments before
closing on the purchase of the Apartments. After making this discovery,
BRE insisted that Jefferson either reduce the price of the property or
ensure that, before the sale, the Romans vacate the property and release
any claims against the property. At one point, BRE indicated that it
would reduce its offer to purchase the property by $1 million if the
Romans remained at the Apartments. At another point, BRE was ready
to walk away altogether if the Romans did not leave the building.

      Eventually, in July 2013, Jefferson and BRE executed a Purchase
and Sale Agreement to memorialize the sale of Apartments to BRE.
Included in the Purchase and Sale Agreement are provisions related to
the Romans. One reads as follows:

       Seller [Jefferson] shall have confirmed to Buyer’s
       reasonable satisfaction that Gabriel and Luminita Roman
       are no longer tenants at the Property and that they have
       vacated Unit 424 at the Property, and that Seller has
       settled the outstanding litigation with the Romans relating
       to the Property.

       The Purchase and Sale Agreement contains other provisions
under which Jefferson represents to BRE that “[a]ny and all litigation
relating to the Property between Seller and [the Romans] has been
settled and dismissed with prejudice,” “[a]ny and all Leases between
Seller and Luminita and/or Gabriel have been terminated,” and
“Luminita has released any right to reside at the Property.”

      To address BRE’s concerns, Jefferson, through Cushman &
Wakefield, engaged with Ms. Roman about an agreement that would
resolve all pending and future legal claims between them and require

       3 For additional background about this lawsuit and another one filed by the

Romans against BRE’s survivor, BEX Portfolio, LLC, see the 2015 and 2019 decisions
by the Court of Appeal of the State of California, Second Appellate District, Division
Seven. Roman v. BRE Props., Inc., 188 Cal. Rptr. 3d 537 (Ct. App. 2015); Roman v.
BRE Props., Inc., B282422, 2019 WL 5956392, at *1 (Cal. Ct. App. Nov. 13, 2019).
                                         7

[*7] the Romans to vacate the property. Mr. Roman was not physically
present during these settlement negotiations, nor did he have any
communication with Jefferson concerning the settlement, aside from
eventually executing the agreement the parties reached.

V.     Settlement Agreement Among the Romans, Jefferson, and
       Greystar

       In September 2013, Jefferson made the Romans an offer to pay
$700,000 in exchange for their vacating the Apartments and executing
a mutual release of any pending and future legal claims. Marc Renard,
who negotiated the settlement with Ms. Roman on behalf of Jefferson,
gave the Romans 15 minutes to accept the offer and told Ms. Roman that
for every 15 minutes in which they did not accept (after the initial 15
minutes), the offer would go down by $50,000. Ms. Roman then
conveyed the offer to Mr. Roman and told him she would leave him if he
did not agree. Within the first 15 minutes set by Mr. Renard, the
Romans accepted the offer.

       The agreement was reduced to writing in the form of a Settlement
and Mutual Release Agreement (Settlement Agreement). The Romans,
Jefferson, and Greystar executed the Settlement Agreement on
September 19, 2013. The Settlement Agreement refers to both
Mr. Roman and Ms. Roman as the “Tenants,” Jefferson and Greystar as
the “Landlords,” the Apartments as the “Community,” and Mr. Roman’s
apartment as the “Premises.” BRE was not a party to the Settlement
Agreement.

       In relevant part, the terms of the Settlement Agreement are as
follows: 4

       3.      Consideration

              3.1   Tenants shall totally and completely vacate
       the Premises and the Community in good condition on or
       before September 26, 2013 at 5:00 PM pacific standard
       time, by removing all personal property from the Premises
       and all vehicles from the Community and by turning in all
       keys to the Premises and/or to the Community to

        4 The provisions are numbered in the manner in which they appear in the copy

of the Settlement Agreement in the record.
                                    8

[*8]   Landlords at the management office located at the
       Community.

             3.2   Upon Tenants timely vacating the Premises
       by on or before September 26, 2013 at 5:00 PM pacific
       standard time, Landlord shall pay to Luminita [Roman]
       the sum of Seven hundred thousand dollars . . .
       ($700,000.00) by cashier’s check or other certified funds.

             3.3   Upon execution of this Agreement by all
       Parties, Landlords shall cause the appeal in the [unlawful
       detainer action] to be dismissed with prejudice;
       [Mr. Roman] shall cause the cross-appeal in the [unlawful
       detainer action] to be dismissed with prejudice;
       [Ms. Roman] shall cause the appeal in the Privacy Lawsuit
       to be dismissed with prejudice; and [Mr. Roman] shall
       cause the DFEH Complaint to be dismissed with prejudice.

             ....

              3.6   The Parties agree to execute a joint letter to
       the Housing Authority of the City of Los Angeles stating
       that Tenants’ lease is terminated by mutual agreement
       effective September 26, 2013 at 5:00 PM pacific standard
       time, and that Landlord waives Tenants’ obligation to
       provide a thirty (30) day notice to terminate tenancy which
       may otherwise be required by law.

              3.5    Tenants acknowledge that timely vacating
       the Premises within the time called for in paragraph 3.1 is
       a material term of this Agreement, without which
       Landlords would not enter into this Agreement. Therefore,
       in the event Tenants execute this Agreement but they, or
       either one of them, fails to perform their obligations under
       paragraph 3.1 in full within the time set forth therein,
       Tenants agree that paragraph 3.2 shall be null and void
       and that [Ms. Roman] will not be entitled to receive the
       payment set forth in paragraph 3.2, but the other
       provisions of this Agreement, including the provisions
       relating to dismissal set forth in paragraph 3.3 and the
       mutual releases set forth in paragraph 4, shall be fully
       enforceable without limitation.
                                   9

[*9] The Settlement Agreement includes a general “Mutual Release”
paragraph in which the Romans, Jefferson, and Greystar agreed to
release each other

      from all liability, claims, demands, actions, causes of
      action, damages (whether general, special, personal,
      property, contractual, exemplary, punitive, or otherwise),
      liens, costs, expenses, fees, compensations, controversies,
      judgments, and rights of whatever kind and nature related
      in any way to the transactions or occurrences between
      them to date . . . .

The Mutual Release paragraph also includes the following:

      This release is intended to be interpreted as broadly as
      possible, to apply to all transactions and occurrences
      between the Parties, including, but not limited to, any and
      all claims related to transactions or occurrences concerning
      Tenants’ tenancy at the Premises and/or the Community,
      the Privacy Lawsuit (and appeal thereof), the [unlawful
      detainer] (and appeal and cross-appeal thereof), the DFEH
      Complaint, as well as all other losses, liabilities, claims,
      charges, demands and causes of action, known or unknown,
      suspected or unsuspected, arising directly or indirectly out
      of or in any way connected to these transactions or
      occurrences (collectively “Released Claims”).

The Settlement Agreement does not mention any claims of physical
injuries or sickness suffered by the Romans.

     The Settlement Agreement contains a paragraph titled “No
Admission of Fault or Liability.” This provision reads as follows:

      Neither the execution and delivery of this Agreement, nor
      compliance with its terms, shall constitute an admission of
      any fault or liability on the part of any of the Parties, or
      any of their respective agents, attorneys, representatives,
      or employees. None of the Parties to this Agreement admit
      fault or liability of any sort and, in fact, all Parties
      expressly deny fault and liability.

      The Settlement Agreement also contains an integration clause,
which reads as follows:
                                   10

[*10]          12.11 Entire Agreement.       This Agreement
        constitutes the entire agreement and understanding
        between the Parties on the matters and issues addressed
        hereunder and it supersedes and replaces any prior
        negotiations, oral or written agreements on the same
        subject matter between the Parties hereto. No parol
        evidence may be admitted in any proceeding between the
        Parties hereto to vary the terms or provisions of this
        Agreement.

        Pursuant to the Settlement Agreement, the Romans moved out of
the Apartments on September 26, 2013, and they caused the various
ongoing actions addressed in section 3.3 of the Settlement Agreement to
be dismissed. Ms. Roman received a $700,000 payment from Jefferson
later in 2013. Mr. Roman was not directly paid any portion of the
settlement proceeds, nor did he receive directly any proceeds as a result
of his legal claims against Jefferson and Greystar.

      Jefferson issued a Form 1099–MISC, Miscellaneous Income, to
Ms. Roman, reporting the $700,000 settlement proceeds as “Other
Income” for 2013. Jefferson did not issue a Form 1099–MISC to
Mr. Roman for 2013.

VI.     The Romans’ 2013 Tax Returns

        A.    Ms. Roman’s Return

       Ms. Roman timely filed Form 1040, U.S. Individual Income Tax
Return, for the 2013 taxable year. She prepared her own return.
Ms. Roman reported total income of $15,530 for 2013, consisting of
wages of $9,994, taxable interest of $5,517, and capital gain of $19.
Although Ms. Roman received the Form 1099–MISC Jefferson issued to
her, she did not report any portion of the settlement proceeds in her
return nor on any return for other taxable years. She further claimed
on line 36 a $20,000 deduction for unlawful discrimination claim costs,
reflecting a payment out of the $700,000 settlement proceeds to the
attorney who represented the Romans in the litigation against Jefferson
and Greystar.

        B.    Mr. Roman’s Return

      Mr. Roman did not file a timely income tax return for 2013. On
October 26, 2015, Mr. Roman filed Form 1040EZ, Income Tax Return for
Single and Joint Filers With No Dependents, for 2013. Mr. Roman
                                  11

[*11] prepared his own return. Mr. Roman did not report any income
or claim any loss, deduction, credit, or other tax items on his return.

VII.   Notices of Deficiency and Tax Court Proceedings

       A.    Ms. Roman

      The Commissioner’s Automated Underreporter Unit (AUR), a
document matching program, issued to Ms. Roman a CP2501 Notice on
September 14, 2015, and a Notice CP2000 on November 23, 2015.
Ms. Roman did not respond to either notice. Then on February 16, 2016,
the Commissioner’s AUR program generated a Notice of Deficiency and
issued it to Ms. Roman.

      In the Notice of Deficiency, the Commissioner determined, in
relevant part, that Ms. Roman failed to report on her tax return the
$700,000 payment that she received from Jefferson during the 2013
taxable year.     In addition, the Commissioner determined that
Ms. Roman was liable for a deficiency in income tax of $230,792 and an
accuracy-related penalty of $46,158 under section 6662 for an
underpayment attributable to a substantial understatement of income
tax. The substantial understatement of income tax penalty was
automatically calculated through electronic means by the
Commissioner’s AUR program.

       Ms. Roman timely filed her Petition with our Court on May 9,
2016, to commence her case.

       B.    Mr. Roman

       The Commissioner issued Mr. Roman a Notice of Deficiency for
the 2013 taxable year on March 15, 2017. In the Notice of Deficiency,
the Commissioner determined that Mr. Roman earned $350,000 of the
proceeds from the Settlement Agreement and adjusted his income
accordingly.    As a result of this adjustment, the Commissioner
determined an income tax deficiency of $97,360 and a section 6651(a)(1)
addition to tax for failure to timely file a return of $24,340.

       Mr. Roman timely filed his Petition with our Court on April 5,
2017, to commence his case.
                                    12

[*12]                           OPINION

I.      Burden of Proof

      The Commissioner’s determinations in a notice of deficiency are
generally presumed correct, and the taxpayer bears the burden of
proving those determinations erroneous. See Rule 142(a); Welch v.
Helvering, 290 U.S. 111, 115 (1933); Merkel v. Commissioner, 192 F.3d
844, 852 (9th Cir. 1999), aff’g 109 T.C. 463 (1997). In cases involving
unreported income in the Ninth Circuit, to which an appeal in these
cases would ordinarily lie, see I.R.C. § 7482(b)(1)(A), this general rule is
subject to the following conditions:

        For the presumption to apply . . . the Commissioner must
        base the deficiency on some substantive evidence that the
        taxpayer received unreported income. If the Commissioner
        introduces some evidence that the taxpayer received
        unreported income, the burden shifts to the taxpayer to
        show by a preponderance of the evidence that the
        deficiency was arbitrary or erroneous. If the [taxpayer]
        succeeds in showing that the deficiency was arbitrary or
        erroneous, the burden shifts back to the Commissioner to
        show that the [determination] was correct.

Hardy v. Commissioner, 181 F.3d 1002, 1004–05 (9th Cir. 1999)
(citations omitted), aff’g T.C. Memo. 1997-97; see also Walquist v.
Commissioner, 152 T.C. 61, 67 (2019); Caldwell v. Commissioner, T.C.
Memo. 2022-51, at *5 (“In cases of unreported income, the Commissioner
must establish an evidentiary foundation connecting the taxpayer to the
income-producing activity, Weimerskirch v. Commissioner, 596 F.2d
358, 361 (9th Cir. 1979), rev’g 67 T.C. 672 (1977), or demonstrate that
the taxpayer actually received income, Edwards v. Commissioner, 680
F.2d 1268, 1270–71 (9th Cir. 1982).”).

      In these cases, there is no dispute that Ms. Roman received
$700,000 pursuant to the terms of the Settlement Agreement. That fact,
together with the terms of the Settlement Agreement, establishes the
requisite evidentiary foundation connecting both Ms. Roman and
Mr. Roman to the income. Accordingly, Ms. Roman and Mr. Roman have
the burden of proof to show that the deficiencies determined against
them are erroneous. We note, however, that because we resolve these
cases on the preponderance of the evidence (as we describe further
below), allocation of the burden of proof does not affect our conclusions.
                                         13

[*13] II.     Taxation of Settlement Proceeds

       A.      General Legal Principles

       Gross income includes “all income from whatever source derived.”
I.R.C. § 61(a); see also Commissioner v. Glenshaw Glass Co., 348 U.S.
426, 429 (1955); Rivera v. Baker West, Inc., 430 F.3d 1253, 1256 (9th Cir.
2005). Settlement proceeds constitute gross income unless the taxpayer
proves that they fall within a specific statutory exception. See
Commissioner v. Schleier, 515 U.S. 323, 328 (1995); see also Simpson v.
Commissioner, 141 T.C. 331, 338–39 (2013) (“It is well established that
statutory exclusions . . . are to be narrowly construed and that taxpayers
generally bear the burden of proving that they fall squarely within the
requirements for any exclusion from gross income.” (Citations
omitted.)), aff’d, 668 F. App’x 241 (9th Cir. 2016).

        Section 104(a)(2) excludes from gross income “the amount of any
damages (other than punitive damages) received (whether by suit or
agreement and whether as lump sums or as periodic payments) on
account of personal physical injuries or physical sickness.” For purposes
of section 104(a)(2), “emotional distress shall not be treated as a physical
injury or physical sickness.” I.R.C. § 104(a) (flush text); 5 see also Rivera,
430 F.3d at 1256; Doyle v. Commissioner, T.C. Memo. 2019-8, at *12.
For settlement proceeds to fall within this statutory exclusion, there
must be “‘a direct causal link’ between the [proceeds] and the personal
injuries sustained.” Rivera, 430 F.3d at 1257 (quoting Banaitis v.
Commissioner, 340 F.3d 1074, 1080 (9th Cir. 2003), rev’d and remanded
sub nom. Commissioner v. Banks, 543 U.S. 426 (2005)). The nature of
the claim that was the basis for the settlement controls whether the
damages are excludable under section 104(a)(2). See United States v.
Burke, 504 U.S. 229, 237 (1992); Simpson, 141 T.C. at 339–40 (“Whether
a settlement is achieved through a judgment or by a compromise
agreement, the question to be asked is: ‘In lieu of what were the damages
awarded?’” (quoting Fono v. Commissioner, 79 T.C. 680, 692 (1982), aff’d
without published opinion, 749 F.2d 37 (9th Cir. 1984))); see also
Milenbach v. Commissioner, 318 F.3d 924, 932 (9th Cir. 2003) (“The
nature of a settlement payment is a question of fact reviewed for clear
error. When a claim is resolved by settlement, the relevant question for

        5 The flush text of section 104(a) provides that the general rule against

exclusion of emotional-distress damages does not apply to “the amount paid for medical
care” attributable to emotional distress. The Romans do not raise this issue, and we
do not consider it further.
                                   14

[*14] determining the tax treatment of a settlement award is: ‘In lieu of
what were the damages awarded?’” (Citations omitted.)), aff’g in part,
rev’g in part, and remanding 106 T.C. 184 (1996).

       To determine the basis of a settlement, we look first to the terms
of the settlement agreement to determine whether any of the proceeds
were paid on account of personal physical injury or physical sickness.
See Rivera, 430 F.3d at 1257 (explaining that courts look to “the
underlying agreement to determine whether it expressly states that the
damages compensate for ‘personal physical injuries or physical sickness’
under § 104(a)(2)”); Simpson, 141 T.C. at 340 (same). If the agreement
“lacks express language specifying the purpose of the compensation, we
will then examine the intent of the payor” to determine the basis for the
settlement. Rivera, 430 F.3d at 1257; see also Simpson, 141 T.C. at 340.
In determining the intent of the payor, we consider all facts and
circumstances surrounding the settlement, including the complaints
that were filed and the details surrounding the legal actions. See Rivera,
430 F.3d at 1257 (citing Allum v. Commissioner, T.C. Memo. 2005-177);
see also Simpson, 141 T.C. at 340–41; Bent v. Commissioner, 87 T.C. 236,
245 (1986), aff’d, 835 F.2d 67 (3d Cir. 1987); Sharp v. Commissioner,
T.C. Memo. 2013-290, at *7–8. “Ultimately, the character of the
payment hinges on the payor’s dominant reason for making the
payment.” Tillman-Kelly v. Commissioner, T.C. Memo. 2022-111, at *6
(quoting Green v. Commissioner, 507 F.3d 857, 868 (5th Cir. 2007), aff’g
T.C. Memo. 2005-250). “[T]he nature of underlying claims cannot be
determined from a general release [of claims] that is broad and
inclusive.” Id. (quoting Ahmed v. Commissioner, T.C. Memo. 2011-295,
2011 WL 6440130, at *3, aff’d per curiam, 498 F. App’x 919 (11th Cir.
2012)). “[A]ll settlement proceeds are included in gross income where
there is a general release but no allocation of settlement proceeds among
various claims.” Doyle, T.C. Memo. 2019-8, at *15 (quoting Molina v.
Commissioner, T.C. Memo. 2013-226, at *12). Moreover, we have found
general, prospective waivers inadequate to show that a settlement
payment was made for a physical injury. Smith v. Commissioner, T.C.
Memo. 2018-127, at *18 n.5 (citing Devine v. Commissioner, T.C. Memo.
2017-111, 113 T.C.M. (CCH) 1496, 1499), aff’d, No. 19-1050, 2020 WL
8368279 (D.C. Cir. Dec. 22, 2020).

      B.     Application to Proceeds from Settlement Agreement

      After a thorough review of the record of these cases, we easily
conclude that the $700,000 payment was not made “on account of
personal physical injuries or physical sickness.” See I.R.C. § 104(a)(2).
                                          15

[*15] We start with the express terms of the Settlement Agreement,
which contain no indication that the payment was for personal physical
injury or physical sickness. Indeed, the Settlement Agreement does not
refer to personal physical injuries or physical sickness at all. Rather,
the agreement indicates that the $700,000 payment was made primarily
in return for the Romans’ timely vacating the apartment. Specifically,
the Settlement Agreement says that the $700,000 would be paid to
Ms. Roman “[u]pon [the Romans’] timely vacating the Premises by on or
before September 26, 2013.” Then, a few paragraphs later, the
Settlement Agreement says that, if the Romans failed to timely vacate
the apartment, Ms. Roman “will not be entitled to receive the payment
. . . but the other provisions of this Agreement, including the provisions
relating to dismissal [of the various legal actions] and the mutual
releases . . . , shall be fully enforceable without limitation.” These
provisions, in no uncertain terms, condition the $700,000 payment on
the Romans’ moving out.

       Moreover, the facts and circumstances surrounding the
Settlement Agreement leave no doubt that Jefferson and Greystar
intended to compensate the Romans primarily for moving out and not
for physical injuries or sickness. The timing of the Settlement
Agreement, the testimony of Mr. Renard, and the Purchase and Sale
Agreement between Jefferson and BRE confirm this. First, in spite of
the Romans’ ongoing legal disputes with Jefferson and Greystar, the
decision to offer the Romans $700,000 was made only when it became
necessary for Jefferson to finalize the sale of the Apartments to BRE. 6
Second, Mr. Renard credibly testified about the circumstances
surrounding the decision to settle. BRE had expressed concerns about
the Romans’ residing in the Apartments because of past litigation it had
with them and “wanted the Romans to vacate the property and to
release any claims against the property.”             Trial Tr. 30:7–9.
Consequently, Jefferson made the decision to offer the Romans a
settlement to close the sale to BRE. The Purchase and Sale Agreement
between Jefferson and BRE confirms Mr. Renard’s testimony. In
relevant part, that agreement required Jefferson to “confirm[] to [BRE’s]
reasonable satisfaction that [the Romans] are no longer tenants at the

        6 Before this offer, the record indicates that a significantly lower offer of

$50,000 (and perhaps another offer of $150,000) was made to ensure the Romans would
vacate the Apartments and drop their legal claims. The Romans rejected these offers,
and there is no indication in the record that the offers were intended to settle claims
of personal physical injury or physical sickness.
                                         16

[*16] Property . . . and that [Jefferson] has settled the outstanding
litigation with the Romans relating to the Property.”

       The Romans argue that the payment was made at least in part to
settle the various legal actions they brought against Jefferson and
Greystar, including any future claims they may have had. 7 From this
premise, the Romans conclude that the payment was for physical injury
or sickness. But for multiple reasons this conclusion does not follow.

       To start, nothing in the record suggests that Jefferson and
Greystar were on notice of any material liability for personal physical
injuries or sickness of the Romans (within the meaning of
section 104(a)(2)). For example, among the Romans’ pending actions
against Jefferson and Greystar were the cross-appeal in the unlawful
detainer action Mr. Roman filed, the privacy lawsuit Ms. Roman filed,
and the DFEH complaint Mr. Roman filed. These actions involved
numerous complaints against Jefferson and Greystar including, among
others, discrimination, harassment, privacy violations, noise,
retaliation, and other fair housing violations. Yet we see no complaint
in the many documents the parties introduced in which the Romans
sought damages for personal physical injuries or sickness. To the extent
any maladies were alleged in a complaint, they appear to be more in the
nature of emotional distress allegedly suffered by the Romans. Section
104(a) explicitly says that amounts related to emotional distress do not
fall within the exclusion to gross income under subsection (a)(2). 8

       Nor can the Romans prevail in arguing that the general waiver
clause contained in the Settlement Agreement settled any claims of
personal physical injuries or physical sickness they may have had
against Jefferson and Greystar. In response to such arguments, our
Court has stated time and again that “all settlement proceeds are
included in gross income where there is a general release but no
allocation of settlement proceeds among various claims.” Doyle, T.C.
Memo. 2019-8, at *15 (quoting Molina, T.C. Memo. 2013-226, at *12);

       7 We note, however, that at least part of the consideration for dropping the

legal claims was a mutual release of legal claims Jefferson and Greystar had against
the Romans.
         8 The Romans assert that their documents prove their personal physical

injuries or physical sickness, but we look to the nature of the claims underlying the
Settlement Agreement to determine why the Romans were compensated. See Burke,
504 U.S. at 237. Additionally, the Settlement Agreement’s integration clause limits
the agreement to its express terms and supersedes any prior negotiations by the
parties.
                                       17

[*17] see also, e.g., Tillman-Kelly, T.C. Memo. 2022-111, at *6; Ahmed v.
Commissioner, 2011 WL 6440130, at *3; Connolly v. Commissioner, T.C.
Memo. 2007-98, 2007 WL 1201543, at *3; cf. Simpson, 141 T.C. at 341
(relying on attorney’s testimony to interpret a general release provision).
Moreover, we have also explained that general, prospective waivers are
inadequate to show that a settlement payment was made for a physical
injury. See, e.g., Smith, T.C. Memo. 2018-127, at *18 n.5.

       More generally, while the Romans each gave testimony about
various physical ailments they suffered from, they have not shown the
nexus between such ailments and the $700,000 payment. Virtually all
of Mr. Roman’s ailments were unrelated to living at the Apartments.
And to the extent the Romans argue that Mr. Roman’s ailments were
exacerbated by any noise from the building or stressors caused by living
at the building, the Romans have not demonstrated that any claim for
physical injuries against Jefferson or Greystar was considered when the
Settlement Agreement was executed. Although Ms. Roman testified
that she began experiencing panic attacks, depression, anxiety, and
migraines on account of noise from a neighboring apartment, her claims
appear to have been more in the nature of emotional distress, which are
explicitly excluded from section 104(a)(2). See I.R.C. § 104(a) (flush
text). Finally, although Ms. Roman testified that she injured herself
while moving out of the Apartment, she made no claim that the injury
resulted from any actions or inactions on the part of Jefferson or
Greystar. Therefore, the Romans’ recitation of their various ailments
does nothing to support the argument that the $700,000 was
compensation for personal physical injuries or physical sickness. 9
See, e.g., Blum v. Commissioner, T.C. Memo. 2021-18, at *10 (explaining
that mere “but for” causation is insufficient to make section 104(a)(2)
applicable because, as “[b]oth we and the Court of Appeals for the Ninth
Circuit have explained, . . . a taxpayer ‘must show that there is “a direct
causal link between the damages and the personal injuries sustained”’”
(quoting Doyle, T.C. Memo. 2019-8, at *11)), aff’d, No. 21-71113, 2022
WL 1797334 (9th Cir. June 2, 2022).

       As the Romans have not demonstrated that the proceeds from the
Settlement Agreement were paid on account of personal physical
injuries or physical sickness, the proceeds are includible in gross income.

        9 We also note that, even if Mr. Roman were compensated on account of his

various physical injuries, we do not see why any money paid to Ms. Roman would
escape taxation under section 104(a)(2) as the statute excludes only amounts
attributable to “personal” physical injuries or physical sicknesses.
                                  18

[*18] Next we turn to how the $700,000 should be allocated between the
Romans.

III.   Allocation of Agreement Proceeds Between the Romans

       The Commissioner’s theory of the case is that Mr. Roman and
Ms. Roman each received half of the agreement proceeds and that
Mr. Roman then transferred his share to Ms. Roman as compensation
for services she provided him as a live-in caregiver. Under this theory,
Mr. Roman’s gross income for 2013 should include $350,000 from the
agreement proceeds and Ms. Roman’s gross income should include
$700,000—$350,000 from the agreement and $350,000 as payment for
services. Ms. Roman appears to argue that, if the payment is taxable, it
should be allocated to Mr. Roman, and she disagrees with the
Commissioner regarding the $350,000 payment for services. On the
other hand, Mr. Roman contends that none of the payment should be
allocated to him and that it all belonged to Ms. Roman. For the reasons
we now describe, we find that, even though the full $700,000 was paid
to Ms. Roman, the Romans each have gross income of $350,000
attributable to the payment. And we disagree with the Commissioner
that Ms. Roman had an additional $350,000 of income from services.

       In general, income is taxable to the person who earns it. See
Helvering v. Horst, 311 U.S. 112, 116–18 (1940); Lucas v. Earl, 281 U.S.
111, 114–15 (1930). Under this Court’s precedent, as well as that of the
Ninth Circuit, determining the true earner of income is a question of
who “controls the earning of the income rather than the question of who
ultimately receives the income.” Vercio v. Commissioner, 73 T.C. 1246,
1253 (1980); see also Sparkman v. Commissioner, 509 F.3d 1149, 1158
(9th Cir. 2007), aff’g T.C. Memo. 2005-136. Accordingly, and as the
Supreme Court has explained, “[a] taxpayer cannot exclude an economic
gain from gross income by assigning the gain in advance to another
party.” Commissioner v. Banks, 543 U.S. 426, 433 (2005).

       This longstanding principle has been applied in a number of
contexts. For example, the Supreme Court has held that salaries are
taxed to those who earn them (i.e., the employee who performs the
relevant services) and “that the tax [cannot] be escaped by anticipatory
arrangements and contracts however skillfully devised to prevent the
salary when paid from vesting even for a second in the man who earned
it.” Lucas v. Earl, 281 U.S. at 115. Similarly, the Court has explained
that income from income-producing assets is taxed to the person “who
owns or controls the source of the income” rather than the recipient,
                                    19

[*19] because the person who owns or controls the income source also
“controls the disposition of that which he could have received himself
and diverts the payment from himself to others as the means of
procuring the satisfaction of his wants.” Helvering v. Horst, 311 U.S.
at 116–17; see also Commissioner v. Banks, 543 U.S. at 434. In other
words: “The power to dispose of income is the equivalent of ownership
of it. The exercise of that power to procure the payment of income to
another is the enjoyment and hence the realization of the income by him
who exercises it.” Helvering v. Horst, 311 U.S. at 118.

       Applied to these cases, these authorities require a 50/50 allocation
of the $700,000 payment between Ms. Roman and Mr. Roman. As we
have explained, the $700,000 was paid primarily in exchange for the
Romans’ vacating the Apartments. If either had failed to move out, the
amount would not have been paid. Thus, vacating the Apartments was
an act both Ms. Roman and Mr. Roman performed, in equal measure, to
earn the payment. See Lucas v. Earl, 281 U.S. at 114–15 (income is
taxed to the person who earns it); see also Helvering v. Horst, 311 U.S.
at 118 (when an assignment of income precedes the rendition of services,
the person who performs the services is the person who has the power
to dispose of the income (i.e., the true earner)).

       Further, to the extent that any portion of the payment was
attributable to the Romans’ release of their current and future claims
against Jefferson and Greystar, this too supports a 50/50 allocation. At
the time they signed the Settlement Agreement, both Ms. Roman and
Mr. Roman had pending claims against Jefferson and Greystar.
Moreover, both Mr. Roman and Ms. Roman had rights under
Mr. Roman’s lease that could give rise to future claims. Thus, any
amounts attributable to relinquishing the Romans’ current and future
claims are attributable to both of them. See Commissioner v. Banks, 543
U.S. at 435 (noting that, in the litigation recovery context, “the income-
generating asset is the cause of action that derives from the plaintiff’s
legal injury”).

       Mr. Roman contends that none of the income should be attributed
to him because he neither wanted it nor received it. He saw the
settlement payment as “a form of punishment,” Trial Tr. 174:18, and did
not “like people to abuse just because [they] have the power to abuse,”
Trial Tr. 174:7–8. But neither a taxpayer’s motives nor the absence of
actual receipt is relevant under the governing caselaw. Practically all
assignment of income cases involve taxpayers who, of their own volition,
arrange for someone else to receive income the taxpayer has earned or
                                          20

[*20] will earn. Dating all the way back to 1930, courts have rejected
motives-based arguments. See Lucas v. Earl, 281 U.S. at 115 (“[N]o
distinction can be taken according to the motives leading to the
arrangement by which the fruits are attributed to a different tree from
that on which they grew.”); see also, e.g., Commissioner v. Banks, 543
U.S. at 434 (“[W]e do not inquire whether any particular assignment has
a discernable tax avoidance purpose.”). And, in any event, Mr. Roman’s
professed motives of punishing Jefferson and Greystar and “taking care
of” Ms. Roman are in no way inconsistent with an assignment of income
finding. 10

       Finally, to the extent the Commissioner argues that Mr. Roman
paid his share to Ms. Roman as compensation for services, we disagree.
Although there is no dispute that Ms. Roman was Mr. Roman’s caregiver
at the time she received the payment, the State of California paid her
separately for providing care. Additionally, by residing with Mr. Roman
during the relevant years as his caregiver, Ms. Roman appears to have
shared, at least indirectly, in some of his government housing benefits.
We see no evidence that Mr. Roman owed Ms. Roman any additional
backpay or wages on account of her caregiving. For these reasons, we
find that $350,000 was not paid to Ms. Roman as compensation for
services. To the extent any portion of Mr. Roman’s share was truly
transferred to Ms. Roman for her exclusive use (as opposed to, for
example, being paid to her with the understanding that the amount
ultimately would be used for Mr. Roman’s benefit as well), see supra note
10, it would appear to have been in the nature of a gift.

      In summary, we conclude that each of Mr. Roman and Ms. Roman
earned $350,000 of the settlement proceeds and each should include that
amount in gross income.

          10 At trial, the Court invited Mr. Roman to explain why he had been willing to

execute the Settlement Agreement even though none of the proceeds would go to him.
He responded: “Once you think you know something, someone or something is going
to take care of you, . . . you don’t have to worry. How to explain? I don’t like to have
overheads. So for me, it was better like this.” Trial Tr. 175:16–20. He continued: “It’s
like someone [you] make a pact with – I take care of you; you take care of me – who’s
[to] die first or something like that. I said, yeah, okay. No problem.” Trial Tr. 175:22–
25.
                                   21

[*21] IV.   Ms. Roman’s Liability for Substantial Understatement of
            Income Tax Penalty Under Section 6662

      A.     The Commissioner’s Burden of Production

       Having determined that Ms. Roman received taxable income of
$350,000 for 2013, we now consider whether she is liable for the
section 6662 penalty the Commissioner determined.

       Section 6662 imposes an accuracy-related penalty equal to 20% of
the portion of any underpayment of tax required to be shown on a return
that is attributable to any substantial understatement of income tax.
See I.R.C. § 6662(a) and (b)(2). An understatement of income tax is
“substantial” if it exceeds the greater of “10 percent of the tax required
to be shown on the return for the taxable year” or “$5,000.”
I.R.C.§ 6662(d)(1)(A).

      Under section 7491(c) the Commissioner bears the burden of
production with respect to the liability of an individual for any penalty.
See Higbee v. Commissioner, 116 T.C. 438, 446 (2001). The record shows
that Ms. Roman’s understatement of income tax for 2013 exceeded the
threshold amount under section 6662(d)(1)(A), so the Commissioner has
met his burden to show the penalty under section 6662(a) was proper
when the notice of deficiency was issued.

       The Commissioner must also show compliance with the
procedural requirements of section 6751(b)(1). See I.R.C. § 7491(c).
Section 6751(b)(1) provides that no penalty shall be assessed unless “the
initial determination” of the assessment was “personally approved (in
writing) by the immediate supervisor of the individual making such
determination.” The statute, in relevant part, includes an exception to
this rule for “any other penalty automatically calculated through
electronic means.” I.R.C. § 6751(b)(2)(B); see also Walquist, 152 T.C.
at 69. The record in these cases demonstrates that the Commissioner
automatically calculated the section 6662 penalty asserted against
Ms. Roman through electronic means, and Ms. Roman has not offered
any contrary arguments or evidence. Therefore, no written approval
was required under section 6751. Accordingly, unless Ms. Roman’s
underpayment of tax was attributable to reasonable cause and good
faith, she is liable for the penalty. See I.R.C. § 6664(c)(1).
                                   22

[*22] B.     Reasonable Cause and Good Faith

       No penalty is imposed under section 6662 with respect to any
portion of an underpayment “if it is shown that there was a reasonable
cause for such portion and that the taxpayer acted in good faith with
respect to [it].” I.R.C. § 6664(c)(1). Ms. Roman has the burden to
establish that she is excused from the penalty for reasonable cause. See
United States v. Boyle, 469 U.S. 241, 245 (1985); see also Cooper v.
Commissioner, 877 F.3d 1086, 1095 (9th Cir. 2017), aff’g 143 T.C. 194
(2014).

       The determination of whether a taxpayer acted with reasonable
cause and in good faith is made on a case-by-case basis, taking into
account all of the pertinent facts and circumstances, including the
taxpayer’s efforts to assess the proper tax liability as well as the
taxpayer’s knowledge, experience, and education. See Gerhardt v.
Commissioner, No. 11127-20, 160 T.C., slip op. at 33–34 (Apr. 20, 2023);
see also Treas. Reg. § 1.6664-4(b)(1).

       Ms. Roman’s primary argument for why she should not be liable
for the section 6662 penalty is that an attorney allegedly counseled her
in 2009 that “settlement proceeds for housing discrimination are not
taxable.” Pet’r’s Opening Br. 52. Relatedly, she says that she has “never
reported any prior settlement proceeds . . . and the IRS never served her
with [a notice of deficiency] for any of those tax years.” Id.

      To begin, Ms. Roman has not directed us to any evidence that
supports that she sought out the advice of an attorney in 2009, nor have
we found any such evidence in the record. Accordingly, under
Rule 143(c), we cannot rely on the statements made in her brief
concerning the matter.

       Moreover, even assuming that she did speak with an attorney, to
show that reliance on an attorney constitutes reasonable cause,
Ms. Roman would need to show that her reliance was reasonable. Boyle,
469 U.S. at 250–51; Treas. Reg. § 1.6664-4(b)(1) (“[A taxpayer’s reliance
on] professional advice . . . constitutes reasonable cause and good faith
if, under all the circumstances, such reliance was reasonable and the
taxpayer acted in good faith.”). Our Court applies a three-prong test to
determine whether a taxpayer reasonably relied on professional advice.
Specifically, we analyze whether “(1) [t]he adviser was a competent
professional who had sufficient expertise to justify reliance, (2) the
taxpayer provided necessary and accurate information to the adviser,
                                        23

[*23] and (3) the taxpayer actually relied in good faith on the adviser’s
judgment.” Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43, 99
(2000), aff’d, 299 F.3d 221 (3d Cir. 2002); see also Cooper v.
Commissioner, 877 F.3d at 1095.

        Ms. Roman has produced no evidence that the advice she alleges
to have received was from a competent professional advising her on her
federal tax obligations rather than her state tax reporting obligations.
And Ms. Roman contends that she consulted the attorney in an earlier
year, presumably about a different settlement. She does not claim to
have consulted any adviser about the amount paid here. Moreover,
given the nature of the advice Ms. Roman purportedly received from the
attorney on a relatively straightforward federal tax issue, we question
whether the attorney was in fact a competent professional or whether
Ms. Roman’s reliance on the purported advice would have been
reasonable. Ms. Roman has demonstrated throughout these cases that
she is sophisticated in legal matters, and a simple search would have
contradicted the purported advice. In any event, because Ms. Roman
did not produce sufficient evidence about the advice she received, she
fails to satisfy the three-prong test. 11

       Lastly, Ms. Roman seems to argue that the substantial
understatement of income tax penalty entails a willfulness requirement.
Specifically, she says that the Commissioner “cannot possibly carry [his]
burden that she somewhat wi[l]lfully misstated her income for 2013 . . .
when she filed her return.” Pet’r’s Opening Br. 54. The problem for
Ms. Roman is that there is no willfulness requirement in section 6662.
So this argument is without merit.

       Because Ms. Roman has failed to show that her underpayment of
tax was due to reasonable cause and made in good faith, we conclude
that she is liable for the section 6662 penalty.

V.     Mr. Roman’s Liability for Failure to File Addition to Tax Under
       Section 6651(a)(1)

       Finally, we must determine whether Mr. Roman is liable for the
failure to file a timely return addition to tax under section 6651(a)(1).

        11 And, of course, the fact that Ms. Roman has failed to report similar

settlements in the past does not support the view that her underpayment in 2013 was
due to reasonable cause.
                                      24

[*24] Section 6651(a)(1) imposes an addition to tax for failure to file a
timely return unless the taxpayer proves that such failure is due to
reasonable cause and not willful neglect. Wheeler v. Commissioner, 127
T.C. 200, 207 (2006), aff’d, 521 F.3d 1289 (10th Cir. 2008). The addition
to tax is equal to 5% of the amount required to be shown on a taxpayer’s
return for each month the failure to file continues, but is not to exceed
25% of the amount required to be shown on the return in total. I.R.C.
§ 6651(a)(1).

       As discussed above with respect to the section 6662 penalty,
under section 7491(c), the Commissioner also bears the burden of
production with respect to the liability of an individual for any addition
to tax. See Higbee, 116 T.C. at 446. The parties stipulated that
Mr. Roman did not file a return for his 2013 taxable year until
October 26, 2015, which was more than a year and a half after the return
was due, so the Commissioner’s burden of production under
section 7491(c) is met.

       Once the Commissioner has met his burden of production, the
taxpayer bears the burden of proving that the late filing was due to
reasonable cause and not willful neglect. Rule 142(a); Higbee, 116 T.C.
at 447. Mr. Roman’s only argument to explain why he did not file a
return by the due date is that he believed, mistakenly, that the payment
pursuant to the Settlement Agreement was not taxable income to him
and therefore his gross income for the 2013 taxable year was zero. An
individual generally must file a tax return if the individual’s gross
income exceeds the sum of the personal exemption amount and the
standard deduction for a given year. I.R.C. § 6012(a)(1)(A)(i). For 2013,
that sum was $10,000 for an individual under 65. A taxpayer who
deliberately does not file a return “must use reasonable care to ascertain
that no returns were necessary.”          Beck Chem. Equip. Corp. v.
Commissioner, 27 T.C. 840, 860 (1957). As we discussed above,
Mr. Roman earned $350,000 of the payment from the Settlement
Agreement, which far exceeds the threshold amount for filing a return,
and Mr. Roman has not demonstrated that he used reasonable care to
ascertain that he was not required to file a return. Therefore,
Mr. Roman’s mistaken belief that he did not owe tax for his 2013 taxable
year does not give us a basis for concluding that his failure to timely file
a return was due to reasonable cause and not willful neglect. 12 See, e.g.,

        12 Any argument that Mr. Roman did not file a return because he did not

receive a Form 1099 similarly fails because he knew of the facts underlying the
                                          25

[*25] Probandt v. Commissioner, T.C. Memo. 2016-135, at *39–40;
Evans v. Commissioner, T.C. Memo. 2016-7, at *45–46; Trask v.
Commissioner, T.C. Memo. 2010-78, 2010 WL 1507314, at *9.

       Although Mr. Roman says in his posttrial brief that he eventually
consulted an attorney in the fall of 2015 with respect to his filing
obligations for his 2013 taxable year—well after the return was due—
the attorney advised him to file a return. Therefore, any argument that
Mr. Roman sought out the advice of a professional adviser in
determining his tax filing obligations does not support his assertion that
his failure to file was due to reasonable cause and not willful neglect.
Therefore, Mr. Roman has not met his burden to show why he should be
excused from the addition to tax. Accordingly, we conclude that he is
liable for it. 13

VI.     Conclusion

       As discussed above and after taking into consideration the
Commissioner’s concessions, we find that Ms. Roman earned gross
income of $350,000 for 2013 in connection with the Settlement
Agreement and is liable for an accuracy-related penalty under
section 6662. Similarly, Mr. Roman earned gross income of $350,000 for
2013 in connection with the Settlement Agreement and is liable for the
addition to tax under section 6651(a)(1).

      We have considered all of the parties’ arguments and, to the
extent not discussed above, conclude they are irrelevant, moot, or
without merit.

payment at the time and has not shown that he made any effort to confirm his belief
that he was not required to file a return.
        13 For the first time in the Romans’ Reply Brief, Mr. Roman appears to argue

that his failure to file a timely return was attributable to reasonable cause on account
of his disabilities. Pet’r’s Reply Br. 13. The argument is untimely. See Taiyo Hawaii
Co. v. Commissioner, 108 T.C. 590, 607 (1997). But even if we were to consider it on
the merits, Mr. Roman has not shown how his disabilities prevented him from
complying with his tax filing obligations for 2013. See Thomas v. Commissioner, T.C.
Memo. 2005-258, 2005 WL 2860497, at *3 (“For illness or incapacity to constitute
reasonable cause, [the taxpayer] must show that she was incapacitated to such a
degree that she could not file her returns.” (citing Williams v. Commissioner, 16 T.C.
893, 905–06 (1951))); see also Rayhill v. Commissioner, T.C. Memo. 2013-181 (same);
Joseph v. Commissioner, T.C. Memo. 2003-19 (same). Indeed, the record supports the
conclusion that Mr. Roman did not file a timely return because he thought, mistakenly,
that he was not required to.
                                   26

[*26] To reflect the foregoing and the concessions of the parties,

      Decisions will be entered under Rule 155 in Docket No. 10878-16
and for respondent in Docket No. 7671-17.