EDMUND T. MACMURRAY, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent, UNITED STATES TAX COURT - SUMMARY OPINION, T.C. Summary Opinion 2007-90, Docket No. 6596-06S., Filed May 31, 2007

EDMUND T. MACMURRAY, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

UNITED STATES TAX COURT - SUMMARY OPINION

T.C. Summary Opinion 2007-90

Docket No. 6596-06S.

Filed May 31, 2007.

Edmund T. MacMurray, pro se.

Michael Bitner , for respondent.

FOLEY, Judge : This case was heard pursuant to the provisions of section 7463 ¹ of the Internal Revenue Code in effect when the petition was filed. Pursuant to section 7463(b), the decision to be entered is not reviewable by any other court, and this opinion shall not be treated as precedent for any other case. The issues for decision are whether petitioner may exclude from income a settlement award relating to a lawsuit and is liable for a section 6662(a) accuracy-related penalty.

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¹ ═ Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the year in issue.

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Background

In 2001, petitioner was an employee of Duro-Last Roofing, Inc. (Duro-Last), a roofing company based in Saginaw, Michigan. On September 11, 2001, Duro-Last terminated petitioner's employment. In response, on December 5, 2001, petitioner filed a Complaint and Jury Demand (the complaint) with the Circuit Court of Saginaw County, Michigan. The complaint alleged that Duro-Last had violated the State of Michigan Whistleblower's Protection Act, and that, based on Duro-Last's wrongful actions, petitioner suffered damages.

Subsequent to the filing of the complaint, the matter was referred to mediation. In 2003, as a result of mediation, Duro-Last paid petitioner $80,000. In addition to its payment, Duro-Last issued petitioner a Form 1099-MISC, Miscellaneous Income. Petitioner attached the Form 1099-MISC to his Form 1040, U.S. Individual Income Tax Return, but did not include the settlement award in gross income.

On January 3, 2006, respondent sent petitioner a notice of deficiency relating to 2003. Respondent determined that petitioner failed to report the settlement award and was liable for a section 6662(a) accuracy-related penalty. On April 5, 2006, petitioner, while residing in Boynton Beach, Florida, filed his petition with the Court.

Discussion

Petitioner contends that the settlement award he received was compensation for personal injuries and, pursuant to section 104(a)(2), is excludable from gross income. Respondent contends that the settlement award should have been included in petitioner's gross income.

Section 104(a)(2) provides that gross income does not include "the amount of any 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." Thus, an amount may be excluded from gross income only when it was received both: (1) Through prosecution or settlement of an action based upon tort or tort type rights, and (2) on account of personal injuries or sickness. See Commissioner v. Schleier , 515 U.S. 323, 336-337 (1995); sec. 1.104-1(c), Income Tax Regs.

Petitioner contends that his settlement award meets the requirements of section 104(a)(2). Petitioner, however, did not incur any medical expenses, consult with a medical professional, or inform Duro-Last of any physical injury or sickness. In short, petitioner's settlement award was not received on account of physical injury and is therefore includable in his gross income. ²

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² ═ Sec. 7491(a) is inapplicable because petitioner failed to introduce credible evidence within the meaning of sec. 7491(a)(1).

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Respondent in his notice of deficiency determined that petitioner was liable for a section 6662(a) accuracy-related penalty. Section 6662(a) imposes a penalty equal to 20 percent of the amount of any underpayment attributable to a substantial understatement of income tax. Sec. 6662(b)(2). Section 6664(c)(1) provides that no penalty shall be imposed if a taxpayer demonstrates that there was reasonable cause for the underpayment and the taxpayer acted in good faith. The determination of whether a taxpayer acted with reasonable cause and in good faith depends upon the facts and circumstances. See sec. 7491(c); Higbee v. Commissioner , 116 T.C. 438, 446 (2001); sec. 1.6664-4(b)(1), Income Tax Regs.

Petitioner attached the Form 1099-MISC to his return as "a good-faith effort to show that * * * [he] had received something that wasn't subject to tax." In addition, he included an explanatory addendum detailing his reporting position. Accordingly, we find that petitioner acted with reasonable cause and good faith, and thus, petitioner is not liable for the section 6662(a) accuracy-related penalty.

Contentions we have not addressed are irrelevant, moot, or meritless.

To reflect the foregoing,

Decision will be entered for respondent as to the

deficiency; decision will be entered for petitioner

as to the accuracy-related penalty .

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