In Uncategorized on 12/27/2016 at 15:00

Back on 3/24/16 I said “I have no doubt STJ Leyden will give the taxpayers a fair shake in Tax Court.” See my blogpost “Straight from the Sidewalks of New York,” 3/24/16.

Well, making an offer of proof in support thereof, I give you Jack Dewain Burke, Docket No. 27301-15S, filed 12/27/16, an off-the-bencher, with IRS represented by a law student (under supervision, of course). Welcome to the real world, kid.

JD is “… a disabled veteran with physical and mental disabilities. These physical disabilities included a recurring hernia in his groin, spinal disease and damage, and full body osteoarthritis, which caused painful joints in his knees and pain in his back.” Order, at p. 6 (transcript).

JD also has ADD for which he is taking medication that contains amphetamines.

His employer Home Depot (remind me not to shop there and to discourage anyone I know from shopping there; I cannot well describe their management in a blog meant for family reading), to whom he had made full disclosure on first being hired,  fired him for failing a drug test after reassigning him from a job he could handle well to one he couldn’t, although they did increase his pay even after a bad report.

He told them that the drug was prescribed, but they refused to allow him a defense.

He sued. His lawyer amended the first complaint (how, JD doesn’t know, and he doesn’t have complaint number one).

Home Depot settled. JD’s lawyer told him he didn’t need to pay tax on the settlement, but IRS did.

Judge Di goes through the “what did they really settle, not what did they say they settled” catalogue.

“The payor’s intent can be ‘based on all the facts and  circumstances of the case, including the complaint that was filed and the details surrounding the litigation.’ See, e.g., Allum v. Commissioner, T.C  Memo. 2005-177, 2005 Tax Ct. Memo LEXIS 178, at *15, aff’d 231 Fed. Appx. 550 (9th Cir. 2007). Under California law, which governs the interpretation of petitioner’s settlement agreement with Home Depot, we must consider all credible evidence to determine whether the language of the agreement is fairly susceptible of more than on [sic] interpretation. If it is, we must consider extrinsic evidence relevant to prove which of these meanings reflects the intent of the contracting parties.” Order, at p. 16. (Transcript; Citation omitted).

Now any lawyer who can’t find an ambiguity should find another job, and Judge Di is on the case.

So let’s look at the settlement. There was a modest amount of lost wages, and JD paid tax on that. There were attorneys’ fees, and those get a Section 62(a)(20) above-the-line writeoff, as JD’s attorney pleaded the right kind of discrimination. Those aren’t excludable, but are deductible without phaseout or AMIT.

But in a neat piece of judicial cherrypicking, Judge Di gives JD a well-deserved break.

“Of the 11 causes of action, the last one was for punitive damages. Awards for punitive damages are not excludable from gross income under Section 104(a)(2). Of the remaining ten causes of action, six of them expressly refer to petitioner’s physical injuries or sickness and indicate that petitioner would be seeking damages for medical care by physicians, surgeons, and other health care advisors. Accordingly, the Court concludes that six-tenths of the $31,500 of the settlement payment, or $18,900, is excludable from petitioner’s gross income for 2013 under Section 104(a)(2).” Order, at pp. 18-19. (Transcript).

Plaintiffs’ attorneys, go and do thou likewise. Only you really shouldn’t give tax advice. Just send the client to Judge Di, the veterans’ friend.

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