T.C. Summary Opinion 2003-145
UNITED STATES TAX COURT
SHERIANNE S. COTTERELL, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5912-02S. Filed October 1, 2003.
Sherianne S. Cotterell, pro se.
Andrew R. Moore, for respondent.
PAJAK, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect at the time the petition was filed. Unless otherwise
indicated, section references are to the Internal Revenue Code in
effect for the year in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure. The decision to be
entered is not reviewable by any other court, and this opinion
should not be cited as authority.
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Respondent determined a deficiency of $2,800 in petitioner’s
1999 Federal income tax. This Court must decide whether
petitioner must include proceeds from a legal settlement in gross
income.
This case was submitted fully stipulated pursuant to Rule
122. All of the facts stipulated are so found. Petitioner
resided in Concord, California, at the time she filed her
petition.
On her 1999 Federal income tax return, petitioner did not
report $10,000 from settlement proceeds. Respondent determined
that petitioner was required to report this $10,000 as income.
During 1999, petitioner received $10,000 in settlement (the
settlement proceeds) of a dispute between petitioner and a Salt
Lake City, Utah, television station (the television station).
The dispute arose out of a 1998 television news report (the news
report) concerning petitioner’s role as a court-appointed monitor
of a consent decree following a civil rights class action
involving the State of Utah’s child welfare system. The news
report contained statements that petitioner believed were false
and defamatory. Petitioner and her three children also believed
they were subject to harassment and embarrassment as a result of
the news report.
Petitioner engaged in several discussions with the
television station’s counsel regarding the potential legal claims
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of petitioner and her children. No complaint was filed in court.
During 1999, petitioner individually entered into a
Settlement Agreement and Release of All Claims (the settlement
agreement) with the owner and operator of the television station
and the reporter involved in the news report. Petitioner
received the settlement proceeds pursuant to the settlement
agreement.
Section 61(a) provides that gross income includes all income
from whatever source derived unless excludable by a specific
provision of the Code. Section 104(a)(2) excludes from gross
income amounts received for personal physical injuries or
physical sickness. Nothing in the record indicates, and
petitioner does not contend, that the settlement proceeds are for
personal physical injuries or physical sickness. Rather,
petitioner contends that the settlement proceeds are for “claims
on behalf of [her] children and [her]self” and that respondent
“improperly attributed the income to [petitioner] rather than
[petitioner’s] children.” Petitioner “believe[s] the entire sum
is properly [her] children’s income”.
There is no support in the record for petitioner’s
characterization of the settlement proceeds as her children’s
income. Petitioner has no written documentation to show that the
children were to be considered as parties to the settlement. The
settlement agreement specifically listed petitioner individually
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as a party, not her children. (The settlement agreement is
governed by Utah law. Under Utah law, petitioner would have been
precluded from settling her children’s potential claims without
court approval. Hawkins v. Peart, 37 P.3d 1062 (Utah 2001)).
The settlement agreement was signed by petitioner individually.
The check for the settlement proceeds was made payable to
“Sherianne Cotterell”. A Form 1099-MISC, Miscellaneous Income,
was issued by the television station to petitioner as nonemployee
compensation. Petitioner did not contact the television station
to request that the Form 1099-Misc be reissued to any other
party. None of petitioner’s three children filed a 1999 income
tax return or otherwise reported as income any of the $10,000
settlement proceeds. Petitioner deposited the $10,000 settlement
proceeds into a bank account in her name. Petitioner had the
power to dispose of the $10,000 settlement proceeds as she deemed
necessary. We have no choice on this record but to sustain
respondent’s determination.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for respondent.