Delaney v. Commissioner

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 95-2066

JOSEPH P. DELANEY and
JANE H. DELANEY,

Petitioners, Appellants,

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent, Appellee.

ON APPEAL FROM A DECISION OF THE

UNITED STATES TAX COURT

[Hon. Thomas B. Wells, U.S. Tax Court Judge]

Before

Torruella, Chief Judge,

Cyr and Lynch, Circuit Judges.

Kimberly L. O'Brien, with whom Justin S. Holden and Justin S.

Holden & Associates, Inc. were on brief for petitioners, appellants.

Kevin M. Brown, Attorney, Tax Division, Department of Justice,

with whom Loretta C. Argrett, Assistant Attorney General, and Gary R.

Allen and Bruce R. Ellisen, Attorneys, Tax Division, Department of

Justice, were on brief for respondent, appellee.

November 1, 1996

CYR, Circuit Judge. Joseph J. and Jane H. Delaney
CYR, Circuit Judge

("appellants" or "the Delaneys") challenge a United States Tax

Court ruling upholding a determination by the Commissioner of

Internal Revenue that a portion of their $250,000 settlement

recovery in a tort-based action for personal injuries is subject

to federal income tax as statutory prejudgment interest. We

affirm the Tax Court ruling, without deciding whether prejudgment

interest is ever excludable as "damages received on account of

personal injuries" under Section 104(a)(2) of the Internal

Revenue Code.

I
I

BACKGROUND
BACKGROUND

In 1988, the Delaneys commenced a tort action in Rhode

Island Superior Court, demanding damages for personal injuries

sustained by Mr. Delaney in a fall from the second-floor porch of

their Apple Valley condominium in Smithfield, Rhode Island.

Apple Valley Associates, Inc., the condominium developer; Apple

Valley Condominium Association, Inc., the condominium owners

association; and Condominium Management, Inc., the management

firm responsible for maintaining the condominium properties, were

named as defendants.

On October 12, 1990, a jury awarded $150,000 to Mr.

Delaney for personal injuries and $25,000 to Mrs. Delaney for

loss of consortium, assigning fault among the three defendants as

follows: Apple Valley Associates 25%; Apple Valley Condominium

Association and Apple Valley Condominium Management, jointly,

2

75%. As required under Rhode Island law, the clerk of court

added $112,000 in statutory prejudgment interest to the jury

award, bringing the total judgment to $287,000. The defendants

appealed the judgment to the Rhode Island Supreme Court.

In 1991, while their appeal was still pending, Apple

Valley Condominium Association, Inc. and Condominium Management,

Inc. entered into a settlement agreement to pay the Delaneys

$250,000 for a release of "any and all past, present, or future .

. . claims . . . arising out of bodily injuries sustained by

Joseph P. Delaney . . . ."1 The agreement itself mentioned
1

neither prejudgment nor postjudgment interest; furthermore, it

failed to indicate what, if any, understanding the settling

parties had reached regarding any apportionment of the settlement

amount as between prejudgment interest and compensatory damages.

Subsequently, however, the settling parties filed a stipulation

of dismissal with the Rhode Island Superior Court, which stated:

"No interest. No costs."2 The stipulation was silent as to

whether the term "interest" meant prejudgment interest,

postjudgment interest, or both.

The Delaneys did not declare the $250,000 on their 1991

federal income tax return. Ultimately, the Commissioner assessed

1Under the settlement agreement, both Mr. and Mrs. Delaney
released their claims against Apple Valley Condominium Associa-
tion, Inc. and Condominium Management, Inc. The Delaneys re-
served their right to proceed against Apple Valley Associates,
which was not a party to the settlement agreement.

2After deducting $85,866 in legal fees and expenses, counsel
to the Delaneys issued them a check for $164,134.

3

a $20,580 deficiency for tax year 1991, which was calculated by

allocating 39 percent or $97,561 of the settlement proceeds

to prejudgment interest. The IRS based its 39 percent allocation

on the fact that 39 percent (or $112,000) of the $287,000 superi-

or court judgment constituted prejudgment interest.

The Delaneys initiated proceedings in the Tax Court,

alleging that the entire $250,000 settlement had been properly

excluded from gross income as "damages received . . . on account

of personal injuries or sickness" pursuant to Section 104(a)(2)

of the Internal Revenue Code. The Commissioner has conceded that

the settlement amount attributable to compensatory damages for

personal injuries is excludable, but not the statutory prejudg-

ment interest. Through the testimony of their counsel in the

underlying tort action, their letter proposing settlement to the

defendants, the settlement agreement itself, and the stipulation

of dismissal, the Delaneys attempted to show the Tax Court at

trial that none of the settlement amount had been intended as

prejudgment interest. After determining that the Delaneys had

not met their burden of proving the Commissioner's assessment

incorrect, the Tax Court ruled that the settlement included a

prejudgment interest component amounting to $97,561, or 39% of

the $250,000 settlement. Delaney v. Commissioner of Internal

Revenue, 70 T.C.M. (CCH) 353 (1995).

II
II

DISCUSSION
DISCUSSION

This case concerns the inherent tension between two

4

sections of the Internal Revenue Code governing exclusions from

gross income. Section 61(a) of the Internal Revenue Code states:

"[e]xcept as otherwise provided in this subtitle, gross income

means all income from whatever source derived." 26 U.S.C.

61(a) (emphasis added). On the other hand, section 104(a)(2) of

the Internal Revenue Code provides that "damages received . . .

on account of personal injuries or sickness" are excludable from

gross income. 26 U.S.C. 104(a)(2). The courts have accorded

section 61(a) wide sweep. Commissioner v. Schleier, U.S.

, , 115 S. Ct. 2159, 2167 (1995); Brabson v. United States, 73

F.3d 1040, 1042 (10th Cir. 1996); O'Gilvie v. United States, 66

F.3d 1550, 1555 (10th Cir. 1995), cert. granted, 116 S. Ct. 1316

(1996); see also 26 U.S.C. 61(a)(4) (including "interest"

within definition of "gross income").

Thus, gain constitutes gross income under section 61(a)

unless the taxpayer can demonstrate a specific exclusion.

Brabson, 73 F.3d at 1042 (citing Schleier, U.S. at ,

115 S. Ct. at 2163 (1995); Commissioner v. Glenshaw Gas Co., 348

U.S. 426, 430 (1955); Wesson v. United States, 48 F.3d 894, 898

(5th Cir. 1995)). In determining exclusions under 104(a)(2),

courts are "guided by the corollary to 61(a)'s broad construc-

tion, the `default rule of statutory interpretation that exclu-

sions from income must be narrowly construed.'" Id. (quoting

Schleier, U.S. at , 115 S. Ct. at 2163).

The present appeal revolves around two principal

claims. First, the Delaneys claim that the Tax Court improperly

5

second-guessed their settlement agreement with the defendants in

the tort action by treating a portion of the $250,000 settlement

as statutory prejudgment interest despite the explicit language

in their subsequent stipulation of dismissal: "No interest. No

costs." The Delaneys insist that the stipulated settlement term

"no interest" unambiguously provides that the settlement amount

included no interest component of any type. Second, appellants

maintain that any prejudgment interest in a settlement recovery

for personal injuries comes within the section 104(a)(2) exclu-

sion for "damages" resulting from personal injuries. We find

neither claim availing.

A. Settlement Agreement
A. Settlement Agreement

It is settled law that taxpayers bear the burden of

proving that a tax deficiency assessment is erroneous. United

States v. Rexach, 482 F.2d 10, 16 (1st Cir.), cert. denied, 414

U.S. 1039 (1973); Tax Court Rule 142(a). The Supreme Court has

held that the Commissioner's "ruling has the support of a pre-

sumption of correctness, and the petitioner has the burden of

proving it to be wrong." Welch v. Helvering, 290 U.S. 111, 115

(1933); see also United States v. Janis, 428 U.S. 433, 439

(1976); Estate of Todisco v. Commissioner, 757 F.2d 1, 6 (1st

Cir. 1985) (the basic rule in all tax cases places the burden of

proof with the taxpayer). The rationale for this rule is more

deeply rooted than the conventional regimen that places the

burden of proof on the moving party. See Rexach, 482 F.2d at 16.

Thus, in a tax deficiency suit "the burdens of going forward and

6

of ultimate persuasion are always on the taxpayer and never shift

to the Commissioner." Id. at 16-17. Ultimately, of course, a

tax deficiency assessment is subject to reversal if the taxpayer

establishes by a preponderance of the evidence that it was

erroneous. Estate of Whit v. Commissioner, 751 F.2d 1548, 1556

(11th Cir.), cert. denied, 474 U.S. 1005 (1985).

Viewed simply as a linguistic exercise, appellants'

interpretation has a certain appeal. Since the settlement

agreement language itself suggests no differentiation between

damages and prejudgment interest, its silence plainly permits the

interpretation that the entire $250,000 constituted recompense

for personal injury. Moreover, the subsequent stipulation of

dismissal executed by the parties to the tort action purports to

fill the void by precluding with the language "No interest.

No costs." the interpretation urged by the Commissioner.

The difficulty with appellants' approach lies in the

fact that the required inquiry encompasses much more than the

mere language subscribed to by the parties, whether in the

settlement agreement proper, the stipulation of dismissal, or

both, because under established precedent the Tax Court must

determine "in lieu of what were damages awarded" or paid.3

3Of course, it is the nature of the settled claim itself

which controls whether any of the settlement constituted compen-
sation for a tort-type personal injury. Metzger v. Commissioner,

88 T.C. 834, 847 (1987), aff'd, 845 F.2d 1013 (Table) (3d Cir.

1988); Glynn v. Commissioner, 76 T.C. 116, 119 (1981), aff'd, 676

F.2d 682 (Table) (1st Cir. 1982). Furthermore, "amounts received
in compromise of a claim must be considered as having the same
nature as the right compromised." Alexander v. I.R.S., 72 F.3d

938, 942 (1st Cir. 1995).

7

Alexander v. I.R.S., 72 F.3d 938, 942 (1st Cir. 1995) (emphasis

added) (quoting Raytheon Production Corp. v. Commissioner, 144

F.2d 110, 113 (1st Cir.), cert. denied, 323 U.S. 779 (1944)).

See Getty v. Commissioner, 913 F.2d 1486, 1490 (9th Cir. 1990)

(utilizing Raytheon's "in lieu of" test to classify, for tax

purposes, components comprising settlement amount)). See also

Bent v. Commissioner, 87 T.C. 236 (1986), aff'd, 835 F.2d 67 (3d

Cir. 1987). Moreover, the courts repeatedly have held that the

intent of the payor is a key determinant whether a settlement

recovery is excludable from gross income. See Knuckles v.

Commissioner, 349 F.2d 610, 613 (10th Cir. 1965); Ray v. United

States, 25 Cl. Cr. 535, 540 (1992), aff'd, 989 F.2d 1204 (Table)

(Fed. Cir. 1993); Stocks v. Commissioner, 98 T.C. 1, 10 (1992);

Agar v. Commissioner, 290 F.2d 283, 284 (2d Cir. 1961), aff'g per

curiam 19 T.C.M. (CCH) 116 (1960). Thus, while acknowledging the

importance of the terms employed in the stipulation of dismissal,

the Tax court appropriately inquired, inter alia, whether a

portion of the settlement amount represented prejudgment inter-

est, by looking beyond the language utilized by the parties.

Accordingly, confronted with a $250,000 postjudgment

settlement literally allocating nothing to statutory prejudgment

interest notwithstanding the $112,000 prejudgment interest

component concededly included in the $287,000 superior court

judgment, the Tax Court reasonably considered, inter alia, the

intent of the parties in context. The Tax Court's approach seems

especially apt in these circumstances, where a relevant indicator

8

extrinsic to the settlement documentation suggested that their

choice of settlement language may have been driven by tax consid-

erations. See Taggi v. United States, 35 F.3d 93, 96 (2d Cir.

1994); Glynn v. Commissioner, 76 T.C. 116, 121 (1981), aff'd, 676

F.2d 682 (Table) (1st Cir. 1982); Robinson v. Commissioner, 102

T.C. 116, 126 (1994), aff'd. in part, rev'd. in part, 70 F.3d 34

(5th Cir. 1995), cert. denied, 65 U.S.L.W. 3252 (U.S. Oct. 07,

1996) (No. 95-2067); Threlkeld v. Commissioner, 87 T.C. 1294,

1306-1307 (1986), aff'd, 848 F.2d 81 (6th Cir. 1988); Fono v.

Commissioner, 79 T.C. 680, 694 (1982), aff'd, 749 F.2d 37 (Table)

(9th Cir. 1984); see also Mitchell v. Commissioner, 60 T.C.M.

(CCH) 1368 (1990) (allocation in settlement documentation not

binding where taxpayer drafted document without participation or

approval of adversary), aff'd, 992 F.2d 1219 (Table) (9th Cir.),

cert. denied, 510 U.S. 861 (1993).

Moreover, viewed in context the settlement term "no

interest" is not without ambiguity as the Delaneys would have it.

Rather, it may fairly be read either to provide for no interest,

as the Delaneys suggest, or no interest in addition to the

$250,000 settlement amount. Under the latter interpretation, the

stipulation of dismissal left open whether the $250,000 settle-

ment amount included statutory prejudgment or postjudgment

interest. Thus, in ascertaining the tax consequences of the

final settlement, the Tax Court appropriately went beyond the

explicit "no interest" allocation memorialized in the stipulation

of dismissal, see Bent, 87 T.C. at 244, to consider any extrinsic

9

evidence probative of the true nature of the settlement.

The Tax Court was presented with a markedly similar

situation on a prior occasion, where the taxpayers had obtained a

$1,275,000 jury award in a personal injury action under a state-

law regime that entitled them to statutory prejudgment interest.

McShane v. Commissioner, 53 T.C.M. (CCH) 409 (1987). As in our

own case, the taxpayers in McShane eventually settled with the

tort-action defendants while their case was on appeal, for an

amount greater than the jury award. Id.4 In the deficiency suit

subsequently brought by the taxpayers, the Tax Court decided that

it "must carefully review the settlement agreements and all other

evidence in the record in order to determine whether the payments

ultimately received included interest." Id. Its approach simply

mirrors other Tax Court rulings requiring that all relevant facts

and circumstances receive careful consideration in resolving such

disputes.5 See Byrne v. Commissioner, 90 T.C. 1000, 1007 (1988),

4In McShane, the settlement agreement itself, as distin-

guished from a separate stipulation, explicitly stated: "without
costs and interest." Id. The Delaney Tax Court apparently did

not consider this distinction of significance, although the
Commissioner had emphasized it in his argument. Delaney, 70

T.C.M. 353. Moreover, though the taxpayers in McShane were

entitled to statutory prejudgment interest, it is unclear whether
their judgment included it. On the other hand, the superior
court judgment appealed from in Delaney did include statutory

prejudgment interest.

5Appellants cite McShane for their claim that the underlying

tort judgment had not become final since it was on appeal at the
time of the settlement; therefore, following McShane, the debt

had not been liquidated and there was no fixed or determinable
amount excludable under 104(a)(2). Appellants miss the point
of McShane, however, wherein such indeterminacy merely allowed

the Tax Court to go beyond the language of the settlement agree-
ment. McShane, 53 T.C.M. (CCH) 409 (1987).

10

rev'd. on other grounds, 883 F.2d 211 (3d Cir. 1988); Glynn, 76

T.C. at 120; Robinson, 102 T.C. at 126; cf. Miller v. Commission-

er, 65 T.C.M. (CCH) 1884 (1993), supplemented by 66 T.C.M. (CCH)

1568 (1993) (absent explicit allocations in settlement agreement

itself, Tax Court may consider pleadings, jury award, and any

court order or judgment in determining settlement payor's in-

tent), aff'd, 60 F.3d 823 (Table) (4th Cir. 1995); Fitts v.

Commissioner, 67 T.C.M. (CCH) 2136 (1994) (if no lawsuit has been

filed, court considers all relevant documents, letters and

testimony), aff'd, 53 F.3d 335 (Table) (8th Cir. 1995).

The McShane court considered a combination of factors.

First, the term "without costs and interest" had been included in

the settlement agreement at the insistence of counsel for the

principal defendant in the tort action. Second, the intentions

of all parties to the underlying tort action, as stated by their

attorneys, were most consistent with an intention to pay no

interest. Third, the Tax Court credited the testimony of all

counsel in the tort action that the settlement amounts for each

plaintiff had been arrived at by assessing the risks on appeal

and that the tax consequences had never been discussed. Id.

The Tax Court in the present case pursued a similarly

inclusive approach by probing beyond the settlement agreement

terms, examining all relevant evidence including the testimony of

the Delaneys' counsel in the underlying tort action, who stated

that the excludability of the $250,000 settlement amount from

gross income was never taken into account in the settlement

11

agreement, only the risks on appeal. In addition, however, the

Tax Court considered a letter from the Delaneys' counsel propos-

ing settlement to the tort-action defendants and noting that

interest was continuing to accumulate on the superior court judg-

ment. There was no testimonial evidence regarding the relevant

intentions of any tort-action defendant.

Finally, the Tax Court considered the appropriateness

of the parallel utilized by the Commissioner in apportioning the

undifferentiated settlement amount as between prejudgment inter-

est and compensatory damages. The Commissioner had allocated 39%

of the $250,000 settlement to statutory prejudgment interest,

representing the identical proportion by which the clerk of

court, pursuant to Rhode Island law, had increased the jury's

personal injury award. The Fifth Circuit has noted in similar

circumstances that a jury verdict provides "the best indication

of the worth" of the taxpayers' original tort claims. Robinson

v. Commissioner, 70 F.3d 34, 38 (5th Cir. 1995) (approving Tax

Court's allocation of settlement proceeds based on percentage of

damages represented by each element in jury award, where Tax

Court went beyond terms of agreement settling action against bank

for wrongful failure to release lien).

As the Tax Court supportably ruled that the Delaneys

had not overcome the presumption of correctness to which the

Commissioner's allocation is entitled, the allocation of 39% of

the settlement amount to statutory prejudgment interest, substan-

tially based upon the aforementioned parallelism, did not consti-

12

tute error. See Robinson, 70 F.3d at 38; Estate of Todisco, 757

F.2d at 5.

13

B. Excludability of Prejudgment Interest
B. Excludability of Prejudgment Interest

The Delaneys next contend that statutory prejudgment

interest itself is excludable as "damages received . . . on

account of personal injury or sickness," see 26 U.S.C.

104(a)(2) (1986) (emphasis added), because the "gross income"

exclusion under section 104(a)(2) embraces all amounts recovered,

by settlement or otherwise, as compensation for personal inju-

ries, without regard to the stage in the litigation process at

which settlement occurs. We address their predicate arguments in

turn.

1. Tax Court Authorities
1. Tax Court Authorities

The Delaneys challenge the leading precedent upon which

the Tax Court relied, see Kovacs v. Commissioner, 100 T.C. 124

(1993), aff'd, 25 F.3d 1048 (Table) (6th Cir.), cert. denied,

U.S. , 115 S. Ct. 424 (1994), for its holding that the

prejudgment interest component in a compensatory damages recovery

for personal injuries is taxable. The Delaneys maintain that
.

Kovacs is unsound because it relied upon judicial precedents for

taxing postjudgment interest as authority for taxing prejudgment

interest. Consequently, they contend, Kovacs progeny such as

Delaney are similarly flawed. As their argument is raised for

the first time on appeal, we decline to address it. See, e.g.,

Villfane-Neriz v. F.D.I.C., 75 F.3d 727, 734 (1st Cir. 1996)

(arguments first raised on appeal not ordinarily addressed).6

6Not only did the Delaneys themselves rely on Kovacs below

as support for their contention that prejudgment interest is not
taxable, at no time did they broach their present argument that

14

2. Choice of Governing Law
2. Choice of Governing Law

The Delaneys next contend that Rhode Island law con-

trols whether any statutory prejudgment interest included in a

personal injury settlement constitutes "damages" for federal

income tax purposes. Since prejudgment interest is an element of

damages under Rhode Island law, appellants argue, the entire

$250,000 settlement must be excluded from gross income under

section 104(a)(2) as damages for personal injury.

The Tenth Circuit, recently confronted with a similar

problem, noted that though state law governs the nature of legal

interests and rights created under state law, the "federal tax

consequences pertaining to such interests and rights are solely a

matter of federal law." Brabson, 73 F.3d 1040, 1044 (Coffin,

J.). Accordingly, the Brabson panel first ascertained the

pertinent characteristics of statutory prejudgment interest under

Colorado law, but then looked to federal law to determine its

excludability. Id. at 1044. As we agree with the thoughtful

approach in Brabson, we turn first to Rhode Island law to deter-

mine the nature of the statutory prejudgment interest ministeri-

ally added by the superior court clerk to the personal injury

damages award returned by the jury in this case.

Unlike the Colorado statute at issue in Brabson,

statutory prejudgment interest is not an element of damages in a

personal injury action under Rhode Island law. DiMeo v. Philbin,

502 A.2d 825, 826 (R.I. 1986) (prejudgment interest in personal

Kovacs and its progeny are not good law.

15

injury action purely statutory and therefore not an element of

damages); Castrignano v. E.R. Squibb & Sons, Inc., 900 F.2d 455,

463 (1st Cir. 1990) (prejudgment interest under Rhode Island law

"is not an element of damages" in personal injury action) (citing

Andrade v. State, 448 A.2d 1293, 1295 (R.I. 1982)).7 According-

ly, in order to prevail, the Delaneys must establish that pre-

judgment interest is excludable under section 104(a)(2) notwith-

standing its state-law characterization.8

3. Interest as "Damages On Account of Personal Injuries"
3. Interest as "Damages On Account of Personal Injuries"

The two requirements for determining exclusions under

section 104(a)(2) were recently explained in Schleier:

First, the taxpayer must demonstrate that the
underlying cause of action giving rise to the
recovery is "based upon tort or tort type
rights"; and second, the taxpayer must show

that the damages were received "on account of
personal injuries or sickness."

Schleier, 115 S. Ct. at 2167 (emphasis added). Although their

underlying causes of action clearly satisfy the first prong,

unless the Delaneys are able to make the second crucial showing

7Even though statutory prejudgment interest is an element of
compensatory damages under Colorado law, the Brabson panel deter-

mined, for purposes of 26 U.S.C. 104(a)(2), that prejudgment
interest under Colorado law is not "received on account of
personal injury." 73 F.3d at 1044-47.

8The Delaneys cite, inappositely, to Factory Mut. Ins. Co.

v. Cooper, 262 A.2d 370 (R.I. 1970), for the proposition that

prejudgment interest constitutes "damages" under Rhode Island
law. In Factory Mutual, the Rhode Island Supreme Court stated

that the term "damages" included statutory prejudgment interest,
id. at 373, while interpreting the term "damages" as used in an

insurance policy. Id. at 371. See also, e.g., Lombardi v.

Merchants Mut. Ins. Co., 429 A.2d 1290, 1293 (R.I. 1981) (relying

on Factory Mutual for proposition that prejudgment interest

constitutes damages in context of insurance subrogation action).

16

that the portion of their settlement recovery attributable to

statutory prejudgment interest was "received on account of

personal injuries or sickness" their claim fails. Id.

The second predicate showing necessitates what the

Brabson court termed proof that "each element of damages was

linked to the injury itself." Brabson, 73 F.3d at 1043.9 The

Delaneys utterly failed to preserve any claim that the prejudg-

ment interest component in their settlement recovery was linked

to their personal injuries.10 Id. See also Manzoli v. Commis-

9At this point in its analysis, the Brabson court, after

consulting established canons of interpretation, determined that
prejudgment interest under Colorado law simply is not "received
`on account of personal injuries or sickness'" notwithstanding
the more hospitable state-law environment there involved
(Schleier, 115 S. Ct. at 2167) and is therefore taxable under

104(a)(2). In reaching its decision, the Brabson court looked to

congressional intent and, most importantly, the "default rule"
requirement that courts narrowly construe exclusions from gross
income. Brabson, 73 F.3d at 1045-1046.

10The Delaneys do advert on appeal to a "time loss value of
money" element in statutory prejudgment interest, and assert that
it constitutes compensatory damages because it is designed to
make the personal injury victim whole. Their "make whole" claim
was not preserved in the Tax Court, however. See Villfane-Neriz,

75 F.3d at 734 (arguments first raised on appeal, not ordinarily
addressed). No argument was made below that the statutory pre-
judgment interest ministerially assessed by the clerk of court
pursuant to Rhode Island law comprised both a taxable and a
nontaxable component, nor did a "make whole" argument surface in
any other developed manner before the Tax Court. The sum total
of their efforts to surface such a claim consisted of a quotation
from the district court opinion subsequently reversed in Brabson,

cited in service of the argument that prejudgment interest is an

element of damages under Rhode Island law. Even more important-

ly, appellants established no evidentiary predicate which would

have enabled the Tax Court to determine what portion of the
statutory prejudgment interest ministerially added by the clerk
of court constituted "make whole damages." See United States v.

Alzanki, 54 F.3d 994, 1009 (1st Cir. 1995) ("Appellant's utter

failure to [raise argument below] disabled the [court below] from
making a reasoned assessment . . . in the first instance, and

17

sioner, 904 F.2d 101, 105 (1st Cir. 1990). As it is neither

necessary nor practicable to do so in this case, see note 10

supra, we do not consider whether statutory prejudgment interest

may ever be excludable from gross income under 104(a)(2), an

important question left for another day.

III
III

CONCLUSION
CONCLUSION

For the foregoing reasons, the Tax Court judgment is

affirmed and costs are awarded to appellee.

So ordered.
So ordered.

from making the predicate factual findings upon which the claims
depend."), cert. denied, 116 S. Ct. 909 (1996).

18