Fillmore L. Carr was an IRS Revenue Agent who settled an employment claim (nature of claim unspecified, but not physical or bodily injury) for $20K, net of withholding. But Fill didn’t bother to put this happy fact on his 1040 in the year he received payment (six years after the stipulation of settlement in the employment claim; again, for reasons unstated).

So we get Special Trial Judge Lew Carluzzo (great first name, Judge) handing Fill a confirmed deficiency, with the prospect of a substantial understatement addition to tax after the Rule 155 bean-count.

You can read the whole story in Fillmore L. Carr and Darlene Carr, 2013 T. C. Sum. Op. 3, filed 1/7/13, a 7463 “just sayin’”.

“Petitioners did not include any portion of the settlement payment or the accrued interest in the income reported on their return. The income tax refund claimed on their return, however, takes into account the Federal income tax withheld from the settlement payment.” 2013 T. C. Sum. Op. 3, at p. 4.

It gets better (or worse, depending upon your point of view). “According to the petition, the ‘Form 1099-INT’ and the ‘Form W-2’ are ‘in error’, but no allegations of facts in support of these assignments of error are made in the petition. Petitioners’ inartful pleading, their failure to submit a pretrial memorandum, and petitioner’s vague presentation at trial make it difficult for us to understand the precise nature of their challenge to the deficiency here in dispute. As best we can determine from what is included in the record, it appears that petitioners challenge the deficiency upon the following grounds: (1) the settlement payment and the interest are specifically excludable from income pursuant to some provision of the Internal Revenue Code; and (2) if the settlement payment and the interest that accrued on that settlement payment are includable in their income, then the proper year of inclusion is 2002, the year the settlement agreement was entered into, and not 2008, the year the payment was made.” 2013 T. C. Sum. Op. 3, at p. 6.

Judge Lew is nothing if not to the point. To answer the exclusion question: “The simple answer is no; neither item is excludable from petitioners’ income.” 2013 T. C. Sum. Op. 3, at p. 6.

Oh yes, and Fill and defaulting Darlene are cash basis taxpayers, and they admit they are. Anyway, their claim the settlement proceeds were received in an earlier year makes no sense, because they received six years’ worth of interest, which couldn’t possibly have accrued in the year of settlement.

Finally, Judge Lew drives home the point: “Petitioner is not an unsophisticated taxpayer; as noted, he is a former IRS revenue agent. We would expect that if petitioners’ position was supported by one of the exclusions from income set forth in one of the sections included in subtitle A, chapter 1, subchapter B, part III of the Internal Revenue Code, our attention would have been directed to that section.” 2013 T. C. Sum. Op. 3, at p.7.

Fill never pointed to a Code section exempting payment of employment claims from tax, largely, I suspect, because there isn’t one.

I guess all his years as a revenue agent, listening to lame arguments, spurious excuses, misconstructions of the IRC and the Regulations, protester nonsense and downright lying from hapless or mischievous taxpayers, finally got to Fill, and he succumbed. It must be an occupational hazard. Tax law rots the mind and erodes one’s moral sense.