T.C. Memo. 2011-44
UNITED STATES TAX COURT
BARON L. OLIVER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 5231-06, 16845-06. Filed February 24, 2011.
Baron L. Oliver, pro se.
Ric D. Hulshoff, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COHEN, Judge: Respondent determined Federal income tax
deficiencies and additions to tax as follows:
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Additions to Tax
Year Deficiency Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6654(a)
2000 $10,163.00 $1,234.80 $2,540.75 $265.40
2001 6,082.00 999.00 954.60 -0-
2002 88,833.00 19,987.43 13,769.12 -0-
2003 37,460.00 6,345.00 3,384.00 711.05
2004 26,141.80 5,794.61 1,545.23 746.32
In an amendment to the answer, respondent asserted an increased
deficiency and additions to tax for 2001 that were based on
income not included in the notice of deficiency but now
stipulated. Unless otherwise indicated, section references are
to the Internal Revenue Code in effect for the years in issue,
and Rule references are to the Tax Court Rules of Practice and
Procedure.
After concessions, the issues for decision are whether
settlement proceeds of $201,000 petitioner received during 2002
were taxable; whether petitioner received income from real
property sold in 2004 and, if so, how much; whether petitioner is
entitled to deductions or exemptions not allowed in the statutory
notices; whether petitioner is liable for additions to tax under
section 6651(a)(1) for each year; and whether petitioner is
liable for additions to tax under section 6654 for 2000, 2003,
and 2004.
FINDINGS OF FACT
Some of the facts have been stipulated, and the stipulated
facts are incorporated in our findings by this reference. At all
material times, petitioner resided in Arizona and was married to
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Micka Oliver. Petitioner and Micka Oliver (the Olivers) were
married in 1970.
Prior to April 3, 2001, petitioner was employed by Qwest
Corp. (Qwest). On July 9, 1997, petitioner filed a complaint
against Qwest in the Arizona Superior Court (the Qwest lawsuit).
On August 31, 1998, petitioner and Qwest entered into a
stipulation regarding the scope of the Qwest lawsuit, limiting
petitioner’s claims to his common law claims, claims he was
subjected to a “hostile environment” because of an alleged
disability, and claims of failure to provide a reasonable
accommodation.
Petitioner’s “disability discrimination” claim was based on
four discrete incidents:
Petitioner’s claim that his supervisor failed to
inform him about an American Indian Leadership
Initiative * * * training session;
Petitioner’s claim that his supervisor improperly
scheduled him to work on a weekend prior to a planned
vacation;
Petitioner’s claim that he was laughed at in
response to his request for a workstation near the door
in a new crew room; and
Petitioner’s claim that he was improperly denied
sick benefits on April 21, 1996.
Petitioner’s “reasonable accommodation” claim was based on
two specific requests:
Petitioner’s request for a workstation near a
door; and
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Petitioner’s request for a vehicle with a factory
air conditioning, as opposed to after-market air
conditioning.
Petitioner also filed a lawsuit in the U.S. District Court
for the District of Arizona and participated in an arbitration of
a grievance relating to his discharge by Qwest and to a dispute
over unemployment insurance.
On April 19, 2002, Qwest and petitioner and Micka Oliver
(the Olivers) entered into a Settlement Agreement and Release of
All Claims (the settlement agreement) and a Side Letter of
Understanding Re Settlement Agreement and Release of All Claims
Between Qwest Corporation and the Olivers (the side letter).
Under the settlement agreement, as provision “First”, Qwest
agreed to pay to the Olivers the sum of $201,000 “for alleged
personal injuries, including emotional distress and compensatory
damages; no portion of which represents payment of back,
severance or front pay or lost benefits.” The parties to the
settlement agreement agreed to dismiss or withdraw pending
lawsuits or administrative proceedings and released all claims
between them.
Provision “Tenth” of the settlement agreement stated in
part:
The Olivers acknowledge and agree that Defendants
have not made any representations to them regarding the
tax consequences of any amounts received by them
pursuant to this Agreement. Defendants shall issue to
Baron Oliver * * * an IRS Form 1099 covering the
payments described in Paragraph FIRST. The Olivers
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agree to pay all federal or state taxes, if any, which
are required by law to be paid with respect to this
settlement. * * *
The side letter contained additional provisions relating to
petitioner’s retirement and pension benefits, including the
following:
The parties further recognize that Mr. Oliver will
be permitted to make a lump sum rollover of his pension
to an account of his own choosing. The amount of
benefit for which Mr. Oliver is eligible is as follows:
a. Total benefit which would have been
payable on 5/1/2001, if then service pension
eligible (i.e., 30 years) of service on that
date), payable as lump sum: $19,692.81;
b. Benefit already received by
participant, as a lump sum: $70,215.13;
c. Net benefit, payable as a lump sum
on 5/1/2001: $122,477.68; and
d. Lump sum, with interest, payable on
5/1/2002: $129,471.16
Petitioner subsequently received distributions from a rollover
individual retirement account created pursuant to the side
letter.
In 2004, petitioner and/or his wife sold real property in
Oklahoma for $65,000. The property was previously petitioner’s
mother-in-law’s home.
Petitioner did not file Federal income tax returns for any
of the years in issue before the notices of deficiency were
issued. During the course of settlement negotiations while this
case was pending, petitioner submitted to respondent a series of
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unsigned Forms 1040, U.S. Individual Income Tax Return, for the
years in issue. The forms purported to be joint returns, but
Micka Oliver declined to sign documents necessary for joint
filing rates to be used in calculating petitioner’s liability.
On the tendered Form 1040 for 2004, petitioner reported a
$35,000 capital gain from the sale of the Oklahoma property, the
difference between a sale price of $65,000 and a cost basis of
$30,000. That Form 1040 was submitted solely for the basis of
settlement. Respondent has conceded that petitioner’s basis in
the property was $30,000.
OPINION
The record in these cases reflects a long and tortured
history, and much of the record is incomprehensible. The cases
were filed in 2006 and were tried in December 2009 after two
continuances, including a period during which a Judge retained
jurisdiction and oversaw attempts to settle. Part of the
settlement negotiations involved submissions by petitioner and
his wife in order to give them the benefits of income splitting
and joint return rates. When settlement negotiations failed, a
statutory notice of deficiency was sent to petitioner’s wife in
2009, and she filed a petition in response. See Oliver v.
Commissioner, T.C. Memo. 2011-43, filed this date.
Respondent sought to have petitioner’s wife’s case
consolidated with petitioner’s cases, but petitioner objected.
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The Court denied respondent’s motion to consolidate and
petitioner’s subsequent motion to continue his cases without
consolidating them with his wife’s case, because delay was not
improving the preparation of these cases for trial. Thus these
cases proceeded to trial, and petitioner’s wife’s case was tried
separately months later. Petitioner continues to make arguments
based on a stipulation proposed during the time that negotiations
included an assumption that petitioner’s wife would be involved
in resolution of these cases, but that stipulation was not filed,
petitioner’s motion to compel that stipulation was denied, and
it is superseded by the stipulation filed and exhibits received
at trial.
Petitioner has consistently denied that the income in issue
received by him during the years in issue is community property,
despite having received the income during a long marriage. For
purposes of these cases, respondent does not contend that the
income is community income but has proposed resolution of
petitioner’s cases and his wife’s case “in tandem” to avoid
inconsistent results. To the extent that none of the parties in
any of the cases contends that disputed items of income are
community property, treating the income as separate property of
petitioner does not lead to inconsistent results. Although the
stipulation sets forth certain items of income, including Social
Security disability benefits petitioner’s wife received, these
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amounts do not appear in the statutory notices and will be
excluded from the computations of petitioner’s taxable income,
avoiding inconsistent results. To the extent that the record
permits an allocation to petitioner or to his wife, such as gains
from the sale of the Oklahoma property, the decision for 2004
will reflect our findings and the conclusions in this opinion.
Finally, to the extent that undisputed items of income such as
wages are community property under Arizona law, as a matter of
law the share allocable to petitioner’s wife should be excluded
from the computations of petitioner’s tax liability for years in
which that income was received.
Many of the previously contested issues, such as
petitioner’s liability for section 72(t) additional tax on
withdrawals from his pension account, have been resolved by
concessions. Respondent has conceded several components of the
originally determined deficiencies, and petitioner has stipulated
the receipt of various items of taxable income. We do not
address all of the arguments and accusations that rehash
procedural history and are irrelevant to the issues to be
decided.
Settlement Proceeds
The largest remaining issue is the taxability of $201,000 in
settlement proceeds petitioner received in 2002. All other
income items have been stipulated.
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The definition of gross income under section 61(a) broadly
encompasses any accession to a taxpayer’s wealth. Commissioner
v. Schleier, 515 U.S. 323, 327-328 (1995); United States v.
Burke, 504 U.S. 229, 233 (1992). Absent an exception in another
statutory provision, settlement proceeds must be included in
gross income. Commissioner v. Schleier, supra at 328; United
States v. Burke, supra at 233.
Section 104(a)(2) excepts 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”.
As to the settlement proceeds, the stipulation states:
With respect to the 2002 taxable year:
a. Petitioner agrees that he received
settlement proceeds from Qwest Corporation in
the gross amount of $201,000.00 (though he
does not concede that all such proceeds are
taxable and reserves the right to argue that
some portion is excludable from income).
Respondent’s opening brief explains that
In Respondent’s Pretrial Memorandum, it was
contemplated that petitioner may attempt to argue that
the cash settlement proceeds, or some portion thereof,
were not taxable pursuant to I.R.C. § 104(a), which
provides that gross income does not include damages
received on account of personal physical injuries or
physical sickness. Petitioner did not raise the issue
and, therefore, respondent will not address it herein.
Rather, petitioner, in his pretrial memorandum and
at trial, appears to argue that the cash settlement
proceeds in the amount of $201,000.00 paid by Qwest in
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2002, or some unspecified portion thereof, are not
taxable because they constitute the same monies
received pursuant to taxable distributions in 2003 and
2004. In other words, petitioner contends that the
cash settlement proceeds were put into some sort of
retirement vehicle, such that it caused distributions
to be reported when portions of such funds were
withdrawn in later years.
As respondent notes, petitioner testified that he used the
settlement proceeds to build a home. Petitioner has stipulated
the receipt of distributions from his retirement account in
subsequent years and the taxable amount of each distribution.
The source of the distributions appears from the record to be
petitioner’s entitlements under the side letter, totally separate
from the $201,000 payment to which he was entitled under the
settlement agreement. Although petitioner insists that the
source of the later distributions was the $201,000 payment, there
is neither factual support nor legal authority for petitioner’s
apparent theory as to why the settlement proceeds received in
2002 are not taxable in that year.
Petitioner also asserts that the dispute with Qwest began
with a “choking incident” and that he was told by attorneys
involved in his Federal District Court case that the settlement
was not taxable. These assertions, however, are unsupported by
evidence and are contradicted by the stipulation about the issues
in the Qwest lawsuit and the terms of the settlement agreement.
In any event, what he may have been told by unidentified
attorneys is inadmissible and irrelevant.
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Petitioner has neither alleged nor proven that any of the
settlement proceeds he received in 2002 is allocable to physical
injuries. He has not identified any physical injuries sustained
or physical sickness suffered as a result of Qwest’s conduct; and
the settlement agreement, while referring to personal injuries,
does not allow for any allocation to physical injuries or
sickness. Thus we conclude that no portion of the settlement
proceeds is excludable from taxable income.
Oklahoma Real Property
Petitioner testified that the Oklahoma property was
purchased when petitioner took over payments on property that was
the home of his mother-in-law. Respondent has conceded that
petitioner had a basis of $30,000 in the property, which was sold
in 2004. Petitioner has not presented any reliable evidence of
basis, so respondent’s concession is the maximum that he may be
allowed. A reasonable inference from the record, however, is
that petitioner and his wife shared equally in the proceeds from
sale of the property.
The terms of sale of the real property are not in evidence,
partly because petitioner refused to stipulate and objected to
relevant documents respondent obtained from third-party sources.
Petitioner testified that he continued to receive payments after
2004, but we have no way of determining what payments were
received when, how much of the payments represented interest or
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principal, and how much gain would be reportable each year on the
installment method. We accept, however, respondent’s offer to
resolve this case in tandem with petitioner’s wife’s case. The
amount of income that petitioner must recognize from the sale of
the real property in 2004 is his community share of the interest
and gain received during that year as decided in Oliver v.
Commissioner, T.C. Memo. 2011-43, rather than the $35,000
determined in the statutory notice. To that extent, we conclude
that respondent has conceded the excess amount and that
petitioner’s admission in the Form 1040 cannot be given weight
because it was provided as part of settlement negotiations. See
Fed. R. Evid. 408.
Deductions and Exemptions
During trial and in his posttrial brief, petitioner has
claimed entitlement to unspecified deductions and to exemptions
for his wife and son. There is no evidence in the record,
however, that would substantiate any deductions. Moreover,
because he has not elected to itemize deductions by filing
returns, he is entitled only to the standard deduction. See sec.
63(e). The standard deduction is that available to a married
person filing separately, as determined in the statutory notices.
Petitioner has not addressed the requirements for dependency
exemption deductions under section 151 and has not shown that he
qualifies for any dependency exemption deductions.
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Additions to Tax
Section 6651(a)(1) imposes an addition to tax for failure to
timely file a required return. Section 6654(a) imposes an
addition to tax for underpayment of required estimated tax.
Respondent has the burden of production under section 7491(c)
with respect to the additions to tax, but that burden is met
where facts stipulated or admitted show that imposition of the
addition to tax is appropriate. See Higbee v. Commissioner, 116
T.C. 438, 446 (2001). Petitioner then has the burden of showing
reasonable cause for failure to file timely or an exception to
application of the section 6654(a) addition to tax. Id.
Petitioner admits that he did not file timely returns and
claims that he had only minimal income and was not required to
file for years subsequent to the years in issue. His reference
to minimal income does not apply to the years in issue in view of
the stipulation as to taxable distributions received and our
conclusion as to the taxability of the settlement proceeds in
2002 and the capital gain in 2004. The income received in each
year exceeded the amount requiring that a return be filed. See
generally sec. 6012(a); sec. 1.6012-1, Income Tax Regs. (The
exemption amounts ranged from $3,100 for a married person filing
a separate return to $15,900 for married persons filing jointly
in 2004 and were less in prior years. See Rev. Proc. 2003-85,
sec. 3.10(1), 3.16(1), 2003-2 C.B. 1184, 1188. It does not
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appear that either petitioner or his spouse was age 65 or over in
those years.)
In his posttrial brief, petitioner refers to health issues
that are not in evidence. In any event, the continuing failure
to file over a period of years is not excused by occasional
health issues. See, e.g., Jordan v. Commissioner, T.C. Memo.
2005-266 (and cases cited therein). Petitioner has not
established reasonable cause for failure to file the returns, and
the additions to tax under section 6651(a)(1) will be sustained.
Respondent has conceded the additions to tax under section
6651(a)(2).
The parties stipulated to the effect that petitioner had a
tax liability of $7,018 for 1999. The notices of deficiency
credited petitioner with amounts withheld in calculating the
underpayment of estimated taxes due for purposes of section 6654.
Because the record establishes that petitioner had a tax
liability for 1999 and that petitioner failed to file returns for
2002 and 2003, he was required to pay estimated taxes equal to 90
percent of the tax owed for 2000, 2003, and 2004. See sec.
6654(d)(1)(B). None of the exceptions in section 6654(e)
applies. The additions to tax, recalculated to reflect
redetermined deficiencies, will be sustained.
Decisions will be entered
under Rule 155.