T.C. Memo. 2010-281
UNITED STATES TAX COURT
SHEILA A. AND RAMON J. JEANMARIE, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7815-08. Filed December 22, 2010.
Sheila A. and Ramon J. Jeanmarie, pro se.
Brock E. Whalen, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
THORNTON, Judge: Respondent determined a $2,491 deficiency
in petitioners’ 2005 Federal income tax and a $623 addition to
tax pursuant to section 6651(a)(1).
The issues for decision are: (1) Whether $15,420 in
disability benefits that Ramon J. Jeanmarie (petitioner) received
in 2005 from the Office of Personnel Management (OPM) is
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excludable from income pursuant to section 104(a)(4); (2) whether
petitioners failed to report interest income totaling $150 on
their joint 2005 Form 1040, U.S. Individual Income Tax Return;
and (3) whether petitioners are liable for the section 6651(a)(1)
addition to tax for failure to timely file their joint 2005
Federal income tax return. Unless otherwise indicated, all
section references are to the Internal Revenue Code for the year
at issue and all Rule references are to the Tax Court Rules of
Practice and Procedure. All dollar amounts have been rounded to
the nearest dollar.
FINDINGS OF FACT
The parties have stipulated some facts, which we so find.
When they petitioned the Court, petitioners resided in Texas.
Petitioner served in the U.S. Army from 1976 until 1979,
when he received an honorable discharge. After he left the Army,
he was employed as a civil service employee of the U.S. Navy. He
retired in 1988 and began receiving disability benefits from OPM
under the Civil Service Retirement System (CSRS).
In 2005 petitioner received from OPM $15,420 in disability
benefits under the CSRS. These distributions were reported to
respondent and categorized as “3-DISABILITY” payments on the Form
CSA 1099R, Statement of Annuity Paid, that OPM issued. In 2005
petitioners also received $43 of interest from FirstLight Federal
Credit Union (FirstLight) and $107 of interest from the
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Department of the Treasury (Treasury Department) upon the
redemption of a U.S. savings bond.
On their joint 2005 Federal income tax return, filed October
16, 2006, petitioners failed to report the $15,420 in
distributions from OPM and the $150 of aggregate interest
received from FirstLight and the Treasury Department.
OPINION
Petitioners bear the burden of proving that respondent’s
determinations are in error. See Rule 142(a).1
I. Disability Benefits
In Jeanmarie v. Commissioner, T.C. Memo. 2003-337 (Jeanmarie
I), petitioners litigated the taxability of petitioner’s
disability benefits received during tax year 1999. In that case
this Court ruled that the disability benefits, also classified as
“3-DISABILITY” payments by OPM, were not excludable from income
under section 104 and consequently petitioners were required to
include them on their joint 1999 return. Id.
The doctrine of collateral estoppel is intended to avoid
repetitious litigation by precluding the relitigation of any
issue of fact or law that was actually litigated and that
resulted in a final judgment. See Montana v. United States, 440
1
Petitioners have not claimed or shown that they meet the
requirements under sec. 7491(a) to shift the burden of proof to
respondent as to any factual issue affecting their liability for
tax.
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U.S. 147, 153 (1979). Collateral estoppel may apply with respect
to an issue if: (1) It is identical to one decided in prior
litigation; (2) a court of competent jurisdiction rendered a
final judgment in the prior litigation; (3) the person against
whom collateral estoppel is asserted was a party to the prior
litigation; (4) the parties actually litigated the issue and the
resolution of the issue was essential to the prior decision; and
(5) the controlling facts and applicable legal rules are
unchanged from those in the prior litigation. Sawyer Trust v.
Commissioner, 133 T.C. 60, 78 (2009); Peck v. Commissioner, 90
T.C. 162, 166-167 (1988), affd. 904 F.2d 525 (9th Cir. 1990); see
Stovall v. Price Waterhouse Co., 652 F.2d 537, 540 (5th Cir.
1981).
These requirements are met as to the issue of the taxability
of petitioner’s disability benefits. This issue is identical to
the sole issue in Jeanmarie I. This Court, a court of competent
jurisdiction, rendered in Jeanmarie I a final judgment that is no
longer subject to appeal. See Rule 190(a). The parties in these
two proceedings are identical. In Jeanmarie I petitioners fully
litigated the taxability of the disability benefits. The
resolution of that issue was essential to the judgment in favor
of respondent, as it was the only issue litigated. Finally, the
controlling facts and applicable legal rules remain unchanged--
the issues in the two cases differ only in that they refer to
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disability payments made in different tax years and for different
amounts. Petitioners have failed to allege or prove any facts
that would alter the characterization of the disability payments
in this case.
Accordingly, petitioners are collaterally estopped from
relitigating the taxability of petitioner’s disability benefits.2
But even if collateral estoppel did not apply, petitioners would
not be entitled to exclude the payments from gross income.
Petitioners seek to exclude the payments under section 104(a)(4)
as “amounts received as a pension, annuity, or similar allowance
for personal injuries or sickness resulting from active service
in the armed forces of any country”. Benefits paid under CSRS do
not provide compensation for personal injuries or sickness
incurred in military service so as to be excludable under section
104(a)(4). Haar v. Commissioner, 78 T.C. 864 (1982), affd. per
curiam 709 F.2d 1206 (8th Cir. 1983); Jeanmarie v. Commissioner,
2
Petitioners argue that respondent is estopped from
litigating the taxability of the 2005 disability payments
because, they assert, respondent determined that petitioner’s
1998 payment was properly excluded from gross income. Collateral
estoppel does not apply to any such determination, however, if
for no other reason than that the issue was not one that was
litigated or one upon which a final judicial determination was
made. See Sawyer Trust v. Commissioner, 133 T.C. 60, 78 (2009).
“The mere acceptance or acquiescence in returns filed by a
taxpayer in previous years creates no estoppel against the
Commissioner nor does the overlooking of an error in a return
upon audit create any such estoppel.” Mora v. Commissioner, T.C.
Memo. 1972-123; see Dixon v. United States, 381 U.S. 68, 72-73
(1965); Auto. Club of Mich. v. Commissioner, 353 U.S. 180, 183-
184 (1957); McGuire v. Commissioner, 77 T.C. 765, 779-780 (1981).
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supra. We sustain respondent’s determination that the disability
payments are includable in petitioners’ gross income for taxable
year 2005.
II. Interest Income
Section 61 defines gross income broadly as “all income from
whatever source derived,” which includes interest income. Sec.
61(a)(4). In 2005 petitioners received $43 of interest from
FirstLight and $107 of interest from the Treasury Department.
They have offered no reason for not reporting the interest
income. We sustain respondent’s determination with respect to
this issue.
III. Section 6651(a)(1) Addition to Tax
Section 6651(a)(1) imposes an addition to tax for failure to
file a timely return unless the taxpayer establishes that the
failure “is due to reasonable cause and not due to willful
neglect”. It is undisputed that petitioners did not timely file
their Federal tax return for taxable year 2005. Respondent has
met his burden of production under section 7491(c). Higbee v.
Commissioner, 116 T.C. 438, 447 (2001). Petitioners have not
alleged or established that they had reasonable cause for failing
to file a timely return. Accordingly, petitioners are liable for
the section 6651(a)(1) addition to tax.
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IV. Section 6673(a)(1) Penalty
Section 6673(a)(1) authorizes the Court to impose a penalty,
not to exceed $25,000, if it appears that the taxpayer has
instituted or maintained proceedings primarily for delay.
Petitioners have deluged this Court with motions repeatedly
seeking delay. They refused to participate in good faith in the
stipulation process. The primary issue which they have sought to
litigate in this proceeding was decided adversely against them in
Jeanmarie I. Cf. Sydnes v. Commissioner, 74 T.C. 864, 872-873
(1980) (imposing a section 6673 penalty on the Court’s own motion
where the taxpayers had attempted twice to relitigate an issue
previously decided against them), affd. 647 F.2d 813 (8th Cir.
1981). These various considerations make us think that
petitioners have instituted this proceeding primarily for delay.
While we decline to impose a penalty today, we warn petitioners
that they may be subject to a section 6673 penalty, even on the
Court’s own motion, if they persist in maintaining proceedings in
this Court primarily for delay.
To reflect the foregoing,
Decision will be entered
for respondent.