Yesterday was a busy day, so busy I missed blogging two (count ’em, two) Tax Court opinions. Here they are.

First, Elijah Servance and Corliss Servance, T. C. Sum. Op. 2022-23, filed 11/21/22. Elijah was workin’ on the railroad, our local commuterhauler MetroNorth. But Elijah fell ill and retired, after 33 years of faithful service. He was eligible for and received tier 1 railroad retirement benefits, which MetroNorth reported but Elijah didn’t.

It’s the old Reg. Section 1.104-1(b) physical injury. Yes, no doubt Elijah was disabled by illness; but the illness wasn’t job-related. The tier 1s weren’t in the nature of workers’ comp.

I note Judge Elizabeth A. (“Tex”) Copeland occasionally uses the correct formula “workers’ compensation,” rather than the obsolete “workmens’ compensation” as in the Reg. Time for Treasury to move their nomenclature into the Twentieth Century, if not the Twenty-First.

Elijah loses, but IRS also loses. The SNOD claims Elijah got $4K in “wages” from Hartford Insurance. Elijah and Corliss swear they didn’t. They did get some disability insurance payments from the Hartford in year at issue, but paid it back same year and introduces an e-mail chain to prove it. IRS objects as hearsay, but this case is a small-claimer, so it goes in.

And all IRS has for the “wages” is the Michael Corleone gambit.

“The notice of deficiency issued to the Servances purports that Hartford submitted a Form W–2 to the IRS reporting a payment of $4,406 to Mr. Servance in [year at issue]. However, respondent provided to this Court neither a copy of that Form W–2 nor any account transcripts or other evidence to that effect. And even if respondent had provided a copy of the Form W–2, that alone would not have satisfied respondent’s threshold burden regarding unreported income. Generally, when a third-party document simply contradicts (without any supporting evidence) a taxpayer’s assertion that he did not receive income, that document does not suffice for us to rely on the presumption of correctness normally afforded to a notice of deficiency.” T. C. Sum. Op. 2022-23, at p. 5. (Citation omitted).

And IRS folds the accuracy chops.

Bryant D. Tillman-Kelly and Melanie Tillman-Kelly, T. C. Memo. 2022-111, filed 11/21/22, is another Section 104, but the physical injury element is so attenuated that Judge Patrick J. (“Scholar Pat”) Urda need hardly detain us with “somber reasoning and copious citation of precedent.”

“In short, we return to the plain text of the settlement agreement that the payment was made for ‘alleged non-wage injuries, as non-economic emotional distress damages.’ This text is clear on its face, but even if there were some doubt, the nature of the state court litigation supports the conclusion that the dominant reason for the payment was to compensate for emotional distress and was altogether unrelated to physical injury.” T. C. Memo. 2022-111, at p. 7.

Bryant was a whistleblower who blew on his immediate superior to US Department of Education and his college’s ethics office. These worthies did nothing. His immediate superior, who, far from falling on his knees in abject repentance, made sure Bryant got the reward due the righteous: summary discharge. This resulted in a lawsuit and a $230K settlement of the abovementioned injuries.

Word to blowers: Before you blow, go over with your attorney exactly how to draft the complaint, tracking Section 104. And what to put in the settlement agreement and general release. Ditto.

And word to blowers’ counsel: Get the medical backup. Get all the documents right. Or you will get The Phone Call.