                          T.C. Memo. 2001-192



                        UNITED STATES TAX COURT



               RICHARD MICHAEL MANAGAN, Petitioner v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6795-99.                 Filed July 26, 2001.


     Richard Michael Managan, pro se.

     Michael A. Pesavento, for respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


     FOLEY, Judge:     By notices dated March 17, 1999, respondent

determined deficiencies in and additions to petitioner’s Federal

income taxes as follows:

                                         Additions to Tax
   Year   Deficiency   Sec. 6651(a)(1)     Sec. 6651(a)(2)   Sec.
6654(a)
   1995    $13,590         $1,835              $1,346           $412
   1996     12,562          1,922                 897            436
                               - 2 -

Unless otherwise indicated, all section references are to the

Internal Revenue Code for the years in issue, and all Rule

references are to the Tax Court Rules of Practice and Procedure.

After concessions, the issues remaining for determination are who

has the burden of proof; whether a 1996 settlement payment is,

pursuant to section 104(a)(2) excludable from income; and whether

certain expenses incurred in 1995 and 1996 are deductible.

                         FINDINGS OF FACT

     When the petition was filed, petitioner resided in

Titusville, Florida.   During 1995 and 1996, petitioner was

married to Yvette Managan.   Petitioner and Mrs. Managan did not

file individual Federal income tax returns for the taxable years

1995 and 1996.

     During 1995 through June 1, 1996, petitioner was employed as

the Director of Management Services for Brevard County, Florida.

On January 26, 1996, petitioner was severely injured (i.e.,

injuries to his head, neck, back, etc.) in a motorcycle accident.

As a result of these disabilities, Brevard County asked

petitioner to resign and, on June 1, 1996, he did so.

     Petitioner consulted an attorney and sought a settlement

from Brevard County.   Petitioner discussed with Tom Jenkins, the

County Supervisor of Brevard County, a potential wrongful

termination claim against Brevard County under the Americans with

Disabilities Act, 42 U.S.C. secs. 12101-12213 (1994) (ADA).
                               - 3 -

Subsequently, on May 31, 1996, petitioner received a check from

Brevard County for $15,920.   As a result, petitioner did not file

a claim against the county.

     In 1992, Mrs. Managan began taking courses at the University

of Central Florida (UCF).   During 1995 and 1996, petitioner and

Mrs. Managan operated a Schedule C business, Monticello Research

Group (MRG), which conducted environmental audits of real

property.   During this same period, Mrs. Managan attended UCF.

While attending UCF, Mrs. Managan did quality control work as an

independent contractor for a professor.   In 1996, Mrs. Managan

received a bachelor’s degree in chemistry.   In 1997, she began

working in a chemistry laboratory for BTR Labs.

     During 1996, shortly after his motorcycle accident,

petitioner began constructing a boat, the Dinky Dau.   Petitioner

intended to use the boat to fish for lobster off the coasts of

Honduras and Nicaragua.   In 1996, petitioner paid $975 to his

attorney to obtain a lobster fishing license from Honduras.

                              OPINION

     As a preliminary matter, petitioner contends that, pursuant

to section 7491(a), the burden of proof should be on respondent.

The parties agree that the examination began after July 22, 1998.

Respondent, however, contends that the burden of proof is on

petitioner because petitioner did not satisfy the requirements of

section 7491(a).   In order for respondent to have the burden of
                               - 4 -

proof on a factual issue, petitioner must introduce credible

evidence relating to the issue.   Sec. 7491(a).   Evidence is

credible if a court would find it “sufficient upon which to base

a decision on the issue if no contrary evidence were submitted”.

Higbee v. Commissioner, 116 T.C. ___, ___ (2001) (slip op. at 8)

(quoting H. Conf. Rept. 105-599 at 240 (1998), 1998-3 C.B. 755,

994).   In addition, petitioner must comply with the Code’s

substantiation requirements, maintain all records required by the

Code, and cooperate with respondent.   Sec. 7491(a).   We address

the burden of proof separately as it relates to each issue.

I.   The Settlement

      Respondent determined that the $15,920 payment from Brevard

County was subject to tax.   Petitioner contends that this payment

was excludable from income pursuant to section 104(a)(2).     This

section excludes from gross income “the amount of any damages

* * * received (whether by suit or agreement and whether as lump

sums or as periodic payments) on account of personal injuries or

sickness”.   An amount may be excluded only when it was received

both:   (1) Through prosecution or settlement of an action based

upon tort or tort type rights, and (2) on account of personal

injuries or sickness.   Commissioner v. Schleier, 515 U.S. 323,

336-337 (1995); sec. 1.104-1(c), Income Tax Regs.

      A settlement of claims arising under the ADA, if paid on

account of personal injury or sickness, may qualify for exclusion
                                 - 5 -

from income pursuant to section 104(a)(2), because the remedies

available include compensatory and punitive damages, as well as

damages for emotional pain, suffering, inconvenience, mental

anguish, loss of enjoyment of life, and other nonpecuniary

losses.   42 U.S.C. sec. 1981a(b) (1994); Phillips v.

Commissioner, T.C. Memo. 1997-336.       Petitioner and Mr. Jenkins’

testimony established that Brevard County made the payment to

settle petitioner’s potential ADA claim for wrongful termination.

Petitioner failed, however, to establish that any portion of the

payment was for nonpecuniary damages.      See Getty v. Commissioner,

91 T.C. 160, 175-176 (1988), affd. on this issue, revd. on other

issues 913 F.2d 1486 (9th Cir. 1990); Wise v. Commissioner, T.C.

Memo. 1998-4.   Accordingly, petitioner is not entitled to exclude

any portion of the settlement.    Because petitioner failed to

present any evidence relating to the allocation of the

settlement, we conclude that he had the burden of proof.      See

Higbee v. Commissioner, supra at ___ (slip op. at 12).

II.   Educational Expenses

      Respondent determined that petitioner was not entitled to

deduct the cost of Mrs. Managan’s studies at UCF.      Petitioner

contends that this course of study did not prepare Mrs. Managan

for a new trade or business, but it merely allowed her to

maintain and improve her skills, as well as to enhance the

reputation of MRG.
                                - 6 -

       Educational costs incurred to maintain or improve skills

required by the individual’s trade or business are deductible as

ordinary and necessary business expenses, unless they are

incurred to meet minimum educational requirements for a

taxpayer’s trade or business or qualify the individual in a new

trade or business.    Sec. 1.162-5(a) and (b), Income Tax Regs.

       Prior to taking her 1995 and 1996 courses at UCF, Mrs.

Managan performed environmental audits for MRG.    The chemistry

degree, however, qualified her for a new trade or business.

Indeed, she used the degree to obtain employment in a laboratory,

in 1997.

       We need not address the burden of proof relating to this

issue because the documentary evidence and Mrs. Managan’s

testimony established that Mrs. Managan’s UCF classes qualified

her for a new trade or business.    Accordingly, petitioner is not

entitled to deduct Mrs. Managan’s 1995 and 1996 educational

expenses.

III.    The Boat

       Respondent determined that petitioner is required to

capitalize legal fees paid to obtain a lobster fishing license

from Honduras and expenses (i.e., cost of utilities and moving

the partially completed vessel) relating to building the Dinky

Dau.    Petitioner contends that these are deductible business

expenses.
                                 - 7 -

     Section 162(a) allows a deduction for all ordinary and

necessary business expenses paid or incurred during the taxable

year.   The costs of acquiring licenses with useful lives

exceeding 1 year are capital expenditures and are not deductible

as business expenses.   Radio Station WBIR, Inc. v. Commissioner,

31 T.C. 803, 815 (1959).   Section 263A requires the

capitalization of direct and indirect costs incurred in the

taxpayer’s production of personal property.

     We conclude that the burden of proof relating to this issue

is on petitioner.   Petitioner presented no evidence that the

attorney’s fees paid to obtain a lobster fishing license provided

a benefit limited to 1996.   In addition, petitioner’s testimony

established that the utility and moving expenses were incurred as

part of the construction process and are subject to section 263A.

Accordingly, petitioner is not entitled to deduct the attorney’s

fees, moving costs, or utility costs in 1996.

     Contentions we have not addressed are moot, irrelevant, or

meritless.

     To reflect the foregoing,


                                              Decision will be entered

                                         under Rule 155.
