
USCA1 Opinion

	




                                [NOT FOR PUBLICATION]                                [NOT FOR PUBLICATION]                            United States Court of Appeals                            United States Court of Appeals                                For the First Circuit                                For the First Circuit                                 ____________________          No. 95-2180                                  LAUREL A. FOREST,                                     Petitioner,                                          v.                          COMMISSIONER OF INTERNAL REVENUE,                                     Respondent.                                 ____________________                            ON APPEAL FROM THE DECISION OF                             THE UNITED STATES TAX COURT                                 ____________________                                        Before                               Torruella, Chief Judge,                                          ___________                           Campbell, Senior Circuit Judge,                                     ____________________                              and Lynch, Circuit Judge.                                         _____________                                _____________________               Joseph A. Kelly, with whom Carroll, Kelly & Murphy,  Charles               _______________            _______________________   _______          J. Reilly, Reilly Law Associates, Inc. and Robert E. Hardman were          _________  ___________________________     _________________          on brief for petitioner.               Kenneth  W.  Rosenberg,   with  whom  Loretta  C.   Argrett,               ______________________                _____________________          Assistant  Attorney General, Gary R. Allen,  Bruce R. Ellisen and                                       _____________   ________________          Kevin M.  Brown, Attorneys, Tax Division,  Department of Justice,          _______________          were on brief for respondent.                                 ____________________                                  December 18, 1996                                 ____________________                    TORRUELLA, Chief Judge.  Petitioner-Appellant Laurel A.                    TORRUELLA, Chief Judge.                               ___________          Forest ("Taxpayer")  appeals the  income tax deficiency  found by          the Commissioner of the Internal Revenue Service ("Commissioner")          and  affirmed by the Tax Court.  See Forest v. Commissioner, T.C.                                           ___ ______    ____________          Memo. 1995-377.   In the  spotlight is Section  104(a)(2) of  the          Internal Revenue Code ("Code"),  which provides that "any damages          received . . . on  account of personal  injuries or sickness"  be          excluded  from  gross   income.1    The  Tax  Court   upheld  the          Commissioner's  determination that  a portion  of the  $2,000,000          Taxpayer  received in  settlement  of her  personal injury  claim          should be  characterized as prejudgment interest  and included in          gross income.   Taxpayer now seeks review of  that decision.  For          the reasons stated below,  we affirm.  We  do not reach,  because          they  have  been  waived, issues  concerning  whether prejudgment          interest  in a  settlement of  a tort action  is excludable  as a          matter of federal law.                                      BACKGROUND                                      BACKGROUND                    The pertinent facts, some of which have been stipulated          and incorporated  in the Tax Court's findings,  and others, which          we draw from the record, are not in dispute.                    On March 9, 1982, Taxpayer fractured her back  when she          slipped  and fell  inside  her  employer's walk-in  refrigerator.          During 1985, she brought a products liability  action against the          manufacturer  of the  refrigerator,  Bohn Refrigeration  Products                                        ____________________          1   Unless otherwise indicated, all section references are to the          Internal Revenue Code in effect for 1992.  Internal Revenue Code,          26 U.S.C.   1 et seq. (1988 & Supp. 1991).                        _______                                         -2-          ("Bohn"), in the  Superior Court of Rhode Island.   See Forest v.                                                              ___ ______          Bohn  Refrigeration  Prods.,  Civil   Action  No.  85-0666  (R.I.          ___________________________          Superior Court,  Providence, Sc.).   Following a trial,  the jury          returned  a verdict on September  18, 1991, in  favor of Taxpayer          for $2,600,000, less ten percent for contributory negligence, for          a  total award  of $2,340,000.   In  addition, pursuant  to Rhode          Island General Laws section 9-21-10 (1985), statutory prejudgment          interest of  twelve percent  was added  to the  jury award.   The          total judgment, including interest, was $5,007,600.  The interest          constituted 53% of the total judgment.                    On  September 27, 1991, Bohn  filed a motion  for a new          trial.   On October  15, following a  hearing on the  motion, the          Superior  Court   found  that  the  jury's   award  "shocked  the          conscience"  and  ordered a  new trial  on  the issue  of damages          unless Taxpayer agreed to a remittitur of $1,000,000 on or before          November 15, 1991.   Two  days later, Taxpayer  consented to  and          filed  the $1,000,000 remittitur and the Superior Court entered a          judgment for  Taxpayer against Bohn  in the amount  of $1,440,000          (i.e., $1,600,000 less ten percent contributory negligence), plus          interest  and costs.   Statutory  prejudgment interest  of twelve          percent was  added to  the judgment, this  time in the  amount of          $1,641,600, resulting in  a total judgment of $3,081,600.  Again,          the interest constituted  53% of  the total judgment.   Then,  on          October  30,  1991,  Bohn, not  satisfied  with  the  new result,          appealed the judgment to the Rhode Island Supreme Court.                                         -3-                    During  the pendency  of the  appeal, Bohn  settled the          case with Taxpayer on December 19, 1991.  In return for a General          Release  ("Release")  by  Taxpayer  of all  claims  for  personal          injuries, Bohn agreed  to pay Taxpayer  $2,000,000.  The  Release          did  not provide for  any allocation  of the  settlement proceeds          between  damages and interest (or costs for that matter).  During          the   settlement  negotiations,  the  parties  neither  discussed          whether  any  portion  of   the  settlement  proceeds  should  be          allocated  to interest  nor stated  that none  of the  settlement          proceeds  represented  interest   --  interest  was  simply   not          discussed, neither during the negotiations nor in the Release.                    On December 19, 1991, and in accordance with  the terms          of  the General  Release, Aetna  Casualty issued  a check  in the          amount  of $2,000,000 to Taxpayer and her attorneys.  On December          23, 1991, Bohn withdrew its appeal and the parties entered into a          Satisfaction  Stipulation ("Stipulation")  in the  Superior Court          for  the purpose of removing  the case from  the Superior Court's          docket.  The Stipulation stated:                      The  judgment  entered by  this  Court on                      October  17,  1991[,]  in the  amount  of                      $1,440,000, plus interest and  costs, has                      been fully satisfied.          The  parties  did  not  consider  the  tax  consequences  of  the          Stipulation.    The  Clerk of  the  Superior  Court  did not  add          interest to the settlement of $2,000,000.                    During  1992, Taxpayer's  attorneys issued  a  check to          Taxpayer in  the amount of $1,256,511.36,  representing her share          of the settlement proceeds after deducting $668,489 in legal fees                                         -4-          and  costs.    Taxpayer  neither  reported  any  portion  of  the          $2,000,000 settlement on  her 1992 federal income  tax return nor          claimed any deductions for legal fees and costs stemming from the          lawsuit.  There was  uncontroverted testimony that Taxpayer never          received  a  Form 1099  documenting  interest  income from  Aetna          Casualty.                    In  its February  3,  1994, notice  of deficiency,  the          Commissioner determined  a deficiency in Taxpayer's  gross income          for  the  taxable year  1992  in the  amount  of  $137,459.   The          Commissioner  determined  that  the  deficiency  was  based  upon          Taxpayer's  failure to  included  in her  1992  gross income  the          additional  interest income from the settlement  in the amount of          $560,000.   This  figure represented  the difference  between the          settlement   proceeds   ($2,000,000)   and   the   damage   award          ($1,440,000).  The Commissioner also determined that, pursuant to          Section  212(1) and subject to  the 2% floor  provided by Section          67, Taxpayer was entitled to miscellaneous itemized deductions in          the amount  of $175,513 for  attorneys' fees attributable  to the          interest portion of the settlement proceeds.                    Taxpayer petitioned the Tax Court for a redetermination          of the deficiency, arguing that an amount received  in settlement          of a personal injury claim represented damages under Rhode Island          law  and  that  the  entire  lump  sum   received  was  therefore          excludable from  income under Section  104(a)(2).  The  Tax Court          sustained   the  Commissioner's  determination,  holding  that  a                                         -5-          portion   of  the  settlement  proceeds  represented  prejudgment          interest and was not excludable from income:                      [I]n   the   instant  case,   no  express                      allocations  were  made in  the [G]eneral                      [R]elease  as to  interest.   Indeed, the                      [G]eneral [R]elease does not even mention                      interest.  Because there were  no express                      allocations,  we  must   look  to   other                      evidence in the  record to decide whether                      any of the settlement proceeds  are to be                      allocated to interest.          After setting forth the chronology of events culminating with the          Stipulation, the Tax  Court concluded that "[b]ased  on the facts          and circumstances of  the instant case,  we hold that  [Taxpayer]          has failed to establish that none of the settlement proceeds were          paid on account of prejudgment statutory interest."                    The Tax Court  then proceeded to decide what portion of          the $2,000,000 constitutes interest.   The court determined that,          "[b]ased on our calculations,  we find that the interest  portion          of a $2,000,000  judgment accruing interest at a rate  of 12% per          annum  over  9.5  years  is  $1,065,420.56"  (footnote  omitted).          Nevertheless, in  light  of the  Commissioner's  concession  that          Taxpayer is  not liable for  a deficiency  in excess of  that set          forth  in the notice of  deficiency, the Tax  Court sustained the          Commissioner's  determination in  the notice  of  deficiency that          $560,000 of the settlement represents interest.                    This appeal  ensued.  We have  jurisdiction pursuant to          26 U.S.C.   7482(a)(1).                                  STANDARD OF REVIEW                                  STANDARD OF REVIEW                                         -6-                    We review the Tax Court's decision "in the same  manner          and to the  same extent  as decisions of  the district courts  in          civil  actions tried  without  a jury."    26 U.S.C.     7482(a).          Whether  prejudgment interest is taxable  is purely a question of          law and,  therefore, subject to de  novo review.  See  Brabson v.                                          ________          ___  _______          United States, 73 F.3d  1040, 1042 (10th Cir. 1996)  (Coffin, J.,          _____________          sitting by  designation), petition  for cert. filed,  64 U.S.L.W.                                    _________________________          3709 (Apr. 10, 1996);  Alexander v.  IRS, 72 F.3d  938, 941  (1st                                 _________     ___          Cir.  1995) (collecting  cases);  see also  First  Nat'l Bank  in                                            ________  _____________________          Albuquerque v. Commissioner, 921 F.2d 1081, 1086 (10th Cir. 1990)          ___________    ____________          (stating that de novo  review is applied to tax  court's findings                        _______          of  law  and  of  ultimate  fact  derived  from   applying  legal          principles to  subsidiary facts).   The  Tax Court's findings  of          fact  -- including its  allocation of the  settlement proceeds to          various elements  of recovery  -- is  reviewable  only for  clear          error.  Alexander, 72 F.3d at 941.                  _________                                      DISCUSSION                                      DISCUSSION                    Neither  party  disputes   that  the  claim  underlying          Taxpayer's recovery was in the nature of a tort, or that Taxpayer          suffered injuries.  What the parties vigorously dispute, and what          we must determine,  is whether a portion of the lump sum received          in  settlement of  Taxpayer's personal  injury claim  constitutes          prejudgment interest  and,  if so,  whether it  is excludable  as          "damages received . .  . on account of personal  injuries" within          the meaning of Section 104(a)(2).                                          I                                          I                                         -7-                    As always, we begin  with the relevant Code provisions,          of which there are  two.  Section 61(a) provides  that, "[e]xcept          as otherwise  provided in this  subtitle, gross income  means all          income  from whatever source derived."  26 U.S.C.   61(a); see 26                                                                     ___          C.F.R.    1.104-1(c).  As  the "'sweeping scope'  of this section          and  its  predecessors  has  been repeatedly  emphasized  by  the          Supreme Court[,]" Brabson, 73  F.3d at 1042 (quoting Commissioner                            _______                            ____________          v. Schleier,  ___ U.S. ___, 115  S. Ct. 2159, 2163  (1995)), "any             ________          gain constitutes  gross income  unless the  taxpayer demonstrates          that  it falls  within a  specific  exemption."   Id.   In  turn,                                                            ___          Section  104(a)(2) -- the exclusion at issue here -- provides, in          relevant  part, that gross income does not include "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."   26  U.S.C.   104(a)(2).   As  the Tenth          Circuit recently noted in Brabson, "[i]n interpreting the breadth                                    _______          of   104(a)(2), we are guided by the corollary to   61(a)'s broad          construction, the 'default rule of statutory  interpretation that          exclusions  from  income  must  be  narrowly  construed.'"    Id.                                                                        ___          (quoting Schleier, ___ U.S. at ___, 115 S. Ct. at 2163); see also                   ________                                        ________          Delaney v. Commissioner, 99 F.3d 20 (1st Cir. 1996).          _______    ____________                                          II                                          II                    Taxpayer makes two main  contentions on appeal.  First,          she claims that the settlement amount did not contain prejudgment          interest,  but  consisted  solely  of  damages, excludable  under          Section 104(a)(2).  Second,  she argues that prejudgment interest                                         -8-          is considered  "damages" and, therefore, any  amount attributable          to prejudgment  interest is  excludable under  Section 104(a)(2).          We address Taxpayer's arguments in turn.                                         -9-                    A.   Allocation of Settlement Amount                    A.   Allocation of Settlement Amount                    "It is  settled law that  taxpayers bear the  burden of          proving that a tax deficiency assessment is erroneous."  Delaney,                                                                   _______          99  F.3d at 23.  The Commissioner's  "ruling has the support of a          presumption of correctness, and the [Taxpayer] has  the burden of          proving it to  be wrong."  Welch v. Helvering,  290 U.S. 111, 115                                     _____    _________          (1933).  "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."  Delaney,                                                                   _______          99 F.3d at 23.                    Taxpayer  argues that the  General Release's silence as          to  interest is key to the proper determination of the allocation          of  the settlement.    While this  argument  may have  a  certain          appeal, see id. ("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."), it          ignores   the  guiding  principle   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."   Id.  at 23-24.    In  making this                                          ___          determination, "the  intent of  the payor  is  a key  determinant          whether a  settlement recovery is excludable  from gross income."          Id. at 24.          ___                                         -10-                    Where, as here, that intent is not readily discernable,          the Tax  Court looks to  all facts and  circumstances surrounding          the settlement, including "the details surrounding the litigation          in the  underlying proceeding,  the allegations contained  in the          payee's  complaint  and  amended  complaint  in  the   underlying          proceeding, and  the arguments made in  the underlying proceeding          by each party  there."   Robinson v. Commissioner,  102 T.C.  116                                   ________    ____________          (1994), rev'd  in part  on other  grounds, 70  F.3d 34  (5th Cir.                  _________________________________          1995), cert.  denied, 117 S. Ct. 83  (1996).  Furthermore,  as we                 _____________          recently pointed out, and as Taxpayer recognizes, "a jury verdict          provides 'the  best indication  of the  worth' of  the taxpayers'          original tort claims."  Delaney, 99 F.3d at 25 (quoting Robinson,                                  _______                         ________          70 F.3d at 38).                    Here, the  Tax Court, recognizing the General Release's          silence  as to allocation of the settlement and having little, if          any,  evidence before  it indicating  the payor's  intent, looked          beyond  the  language of  the General  Release  to the  facts and          circumstances  surrounding  that  settlement.    The   Tax  Court          considered  evidence  from  Taxpayer's  attorneys  that  the  tax          consequences of  the settlement were not  contemplated during the          settlement negotiations.  The Tax Court also recognized, however,          that  the  settlement  was  negotiated  under  the  shadow  of  a          judgment2  that  provided  prejudgment   interest,  in  the  same                                        ____________________          2  Taxpayer argues that the jury award was not a final verdict or          decision  of the court under Rhode Island law.  Taxpayer contends          that  any debt was rendered unenforceable  during the pendency of          the appeal and therefore  there can be no finding  of an interest          component  based on the jury  award.  Even  if Taxpayer correctly                                         -11-          percentage  of  the  total  award  both  before  and  after   the          remittitur.3  Regardless of which judgment is considered, the Tax          Court was not clearly  erroneous in considering this circumstance          as part of the context in which the settlement was reached.                    Additionally, the Stipulation, which stated that "[t]he          judgment .  . . in  the amount of  $1,440,000, plus  interest and          costs, has  been fully satisfied," indicates  that the settlement          reached reflected satisfaction  of the jury award, as  that award          had been apportioned by the Superior Court.                    Moreover, while the  available facts and  circumstances          support  the  Tax  Court's  finding that  the  settlement  amount          included  prejudgment  interest,  nothing  in  those  facts   and          circumstances  supports the  opposite conclusion.   At  best, the                                        ____________________          recites the law of Rhode Island, which we need not decide, we are          not  looking  to  the judgment  as  the  sole  indication of  the          existence of an interest component in  this settlement.  Instead,          we regard the Superior Court's judgment as part of the context in          which the parties negotiated the settlement.          3  Taxpayer  contends that Bohn's appeal  reinstated the original          jury  award.  In support of this contention, Taxpayer cites Dawes                                                                      _____          v. McKenna, 215  A.2d 235 (R.I. 1965).  Dawes,  however, does not             _______                              _____          hold that the original award is automatically reinstated; rather,          it  allows only  that the original  award is  open for  review on          appeal.   Id. at 325-26.  Thus,  it was not clearly erroneous for                    ___          the  Tax  Court  to  look  to the  award  after  remittitur  as a          circumstance for consideration.             Furthermore, as  the Tax Court  appropriately recognized, even          if  the original award were considered, there is no precedent for          the  argument that a jury award larger than the settlement amount          necessitates a finding that the entire settlement is attributable          to compensation  for personal  injuries.   In Robinson,  102 T.C.                                                        ________          116,  the  Tax  Court found  that  a  portion  of the  settlement          proceeds  was  attributable to  interest  even  though the  total          proceeds  represented less  than twenty  percent of  the original          damage award.                                         -12-          General  Release's  silence  regarding   the  allocation  of  the          settlement  proceeds is ambiguous.   In light of  the other facts          and  circumstances   weighing  in   favor  of  the   Tax  Court's          conclusion,  that ambiguity is certainly  not enough to warrant a          finding that the Tax Court's findings are clearly erroneous.                    Taxpayer contends that this  case is similar to McShane                                                                    _______          v.  Commissioner, T.C. Memo 1987-151.  Although the facts in both              ____________          cases  involve  a  jury  award,  an  appeal,  and  a  settlement,          thereafter the  two cases  diverge.   In McShane,  the settlement                                                   _______          agreement provided for  lump sum payments to the taxpayers.  In a          recent case similar  to the one at  bar, this court reviewed  the          McShane  decision and  found that  the Tax  Court's determination          _______          that  the  settlement did  not include  interest  was based  on a          unique set of facts:                      "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."          Delaney, 99 F.3d at 25.          _______                    The Tax  Court in  the instant  case  made a  similarly          thorough inquiry into the  relevant facts and circumstances.   It          found that the settlement agreement was negotiated in the context                                         -13-          of the jury award in the underlying case.  It also heard evidence          from the  Taxpayer's attorneys that neither  tax consequences nor          interest  were considered in reaching the  settlement amount.  It          heard no evidence as to the intent of the payor, Bohn.  The court          found that, unlike the agreement in McShane, there was no express                                              _______          statement in the Release  indicating that the payment was  not to          include prejudgment interest.  Finally, the Stipulation contained          language indicating  that the  settlement satisfied  the judgment          after remittitur,  including interest  and costs.   We  find that          these facts are sufficient to distinguish this case from McShane.                                                                   _______                    Thus, the Tax Court's  conclusion is amply supported by          the  facts  and  circumstances  surrounding  the  settlement  and          Taxpayer's arguments  are insufficient to overcome  her burden of          showing error in the  Commissioner's determination or clear error          in the Tax Court's findings.                    B.   Whether  prejudgment  interest  is  excludable  as                    B.   Whether  prejudgment  interest  is  excludable  as                         "damages" under Rhode Island law.                         "damages" under Rhode Island law.                      1.  Kovacs v. Commissioner                      1.  Kovacs v. Commissioner                          ______    ____________                    Taxpayer argues that the  Code, legislative history and          prior case law do not  support the Tax Court's holding in  Kovacs                                                                     ______          v.  Commissioner,  100  T.C.  124   (1993),  aff'd,  25 F.3d 1048              ____________                             _____          (6th Cir.), cert. denied, 115 S. Ct. 424 (1994), that prejudgment                      ____________          interest on a personal injury claim is not excludable from income          under Section 104(a)(2).  Her contention is that the Tax Court in          Kovacs improperly  relied on precedent holding that post-judgment          ______                                              ____          interest is  not excludable from  interest income.   She  further          maintains  that nothing  in  the legislative  history of  Section                                         -14-          104(a)(2) supports a distinction between compensatory damages and          interest awarded on a claim of physical injury.  Finally, relying          on the Periodic Payment Settlement Act of 1982,4  Taxpayer argues          that Congress, in amending the Code to allow for the exclusion of          period  settlement payments   -- which would  include a component          representing the  time value of money, or interest -- disregarded          any difference between lump  sum and periodic payments  and meant          for any interest income upon settlement  to be excludable.  As we          find  nothing  in  the  record  below,  including  the  testimony          presented and the  initial and  reply briefs of  the parties,  to          indicate that these  arguments were raised before  the Tax Court,          we  decline Taxpayer's invitation to consider  them for the first          time on appeal.   See  Delaney, 99 F.3d  at 26 (determining  that                            ___  _______          taxpayer's  failure to raise  a similar  argument before  the Tax          Court amounted to waiver of that argument).                      2.  Treatment of Interest Under Rhode Island Law                      2.  Treatment of Interest Under Rhode Island Law                    Taxpayer contends  that whether an award  is taxable is          determined by  reference to the  nature of the  underlying claim.          She points out  that the underlying claim here is  one to redress          personal injury  and, as such,  the damages received  thereon are                                        ____________________          4  We note, in passing,  that, to the extent Taxpayer's arguments          rely on this  amendment, such  reliance is misplaced.   That  Act          allows  the  excludability  of  the  entire  amount  of  periodic          payments in settlement of a claim.  In so doing, the Act allows a          portion of "interest"  to be  excluded from gross  income.   This          Act, however,  does not assist  Taxpayer, as her  settlement does          not  fall within  the  provisions  of that  Act.    We apply  the          statutory language  relevant to Taxpayer's particular  claim.  As          the Tax  Court did in Kovacs v.  Commissioner, 100 T.C. 124, 132-                                ______     ____________          33,  any inconsistency between  the two methods  of settlement we          leave to Congress to remedy.                                         -15-          excludable.   Noting that the  nature of the  underlying claim is          determined under  the relevant  state law, Taxpayer  argues that,          under  Rhode  Island   law,  statutorily   imposed  interest   is          considered part of  damages meant to compensate the injured party          and thus is excludable.                    We   recently  visited   the  question  of   state  law          characterization  of  interest.   In  Delaney, we  looked  to the                                                _______          "thoughtful"  approach utilized  in Brabson,  73 F.3d  1040 (10th                                              _______          Cir. 1996) (Coffin, J., sitting by designation):                      "The  Tenth  Circuit  .  . .  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.' . .                      .  Accordingly,  the Brabson  panel first                                           _______                      ascertained the pertinent characteristics                      of  statutory prejudgment  interest under                      [the relevant state] law, but then looked                      to   federal   law   to   determine   its                      excludability."          Delaney, 99 F.3d at 26.          _______                    Accordingly,  we  look first  to  Rhode  Island law  to          determine  the legal  nature of  prejudgment interest.   Taxpayer          relies on  Factory Mutual Insurance Company of America v. Cooper,                     ___________________________________________    ______          262  A.2d 370 (R.I. 1970),  for the proposition  that interest is          part  of damages.  Taxpayer's reliance is misplaced.  The Factory                                                                    _______          Mutual  court  did  not  hold  that  prejudgment  interest  is  a          ______          component  of damages under Rhode Island law.  Instead, the court          there was determining the meaning of the word "damages" as it was          used in an insurance policy.  See id. at 373.                                         ___ ___                                         -16-                    "[S]tatutory prejudgment interest is  not an element of          damages  in a  personal injury  action under  Rhode Island  law."          Delaney,  99 F.3d at  26 (citing DiMeo v.  Philbin, 502 A.2d 825,          _______                          _____     _______          826  (R.I.  1986)  (determining  that  prejudgment   interest  in          personal injury action is purely  statutory and therefore not  an          element of damages)).                    Having found  that, under Rhode Island law, prejudgment          interest is not considered  damages, we next look to  federal law          to determine the  nature of prejudgment interest  for federal tax          purposes.  See id.                     ___ ___                      3.  Prejudgment Interest Under Federal Law.                      3.  Prejudgment Interest Under Federal Law.                    The   Supreme   Court   recently  explained   the   two          requirements for exclusion under Section 104(a)(2):                      "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.'"          Commissioner v. Schleier,  ___ U.S.  ___, 115 S.  Ct. 2159,  2167          ____________    ________          (1995).  The cause of action underlying Taxpayer's settlement was          assuredly  one based  upon tort or  tort type  rights.   We look,          then, to determine whether  Taxpayer has met the second  prong of          excludability.                    Taxpayer  appears  to argue  that  the  purpose of  the          statutorily-imposed prejudgment interest is to make her whole, as          though the injury had never occurred.  This argument rests on two          statements  we  glean  from her  brief  to  the  effect that  the                                         -17-          interest imposed is meant  to compensate the injured party  for a          delay in the payment.   Though this argument may have some merit,          we reserve the question for another day.  Because Taxpayer failed          to raise the contention that the  statutorily-imposed prejudgment          interest is somehow related to her personal injury before the Tax          Court, she  has not preserved  the argument for appeal.   We find          that argument waived.   See Mulero-Rodr guez  v. Ponte, Inc.,  98                                  ___ ________________     ___________          F.3d 670, 679 (1st Cir. 1996) (noting that appellants' silence as          to a particular legal argument before the trial court amounted to          waiver  of  that issue  on appeal);  see  also National  Ass'n of                                               _________ __________________          Social  Workers v. Harwood, 69  F.3d 622, 627-28  (1st Cir. 1995)          _______________    _______          (setting forth the strenuous  guidelines for finding an exception          to this waiver rule).                    In  addition,   we  note  that  Taxpayer's  failure  to          adequately present  any "make  whole" argument  in  her brief  on          appeal also supports a  finding that this issue has  been waived.          We  have previously recognized that "a litigant has an obligation          'to  spell out  its arguments squarely  and distinctly' .  . . or          else  forever hold its peace."   See Rivera-G mez  v. Castro, 843                                           ___ ____________     ______          F.2d  631, 634-35  (quoting Paterson-Leitch Co.  v. Massachusetts                                      ___________________     _____________          Municipal Wholesale  Elec.  Co.,  840  F.2d 985,  990  (1st  Cir.          _______________________________          1988)).   Here,  Taxpayer  has failed  to  put forth  a  coherent          argument, beyond  vague reference, regarding any  relationship an          award of statutorily-imposed interest  might have to her personal          injuries.    "It  is not  enough  merely  to  mention a  possible          argument  in the  most  skeletal way,  leaving  the court  to  do                                         -18-          counsel's  work, create  the ossature for  the argument,  and put          flesh on  its bones."  United  States v. Zannino, 895  F.2d 1, 17                                 ______________    _______          (1st Cir.),  cert. denied, 494 U.S. 1082  (1990); see also  In re                       ____________                         ________  _____          Three Additional Appeals Arising Out of the San Juan Dupont Plaza          _________________________________________________________________          Hotel Fire Litigation,  93 F.3d 1, 2 n.2 (1st  Cir. 1996) (noting          _____________________          that "it is beyond peradventure that we will not address an issue          when the party raising it fails to treat it seriously").  We will          not "abandon the  settled appellate rule that issues  adverted to          in  a  perfunctory  manner,   unaccompanied  by  some  effort  at          developed argumentation,  are deemed waived."   Zannino, 895 F.2d                                                          _______          at 17.   Because we refuse to  guess at Taxpayer's argument,  any          "make-whole" argument she might have made is waived.                    We decline  to pass  on this  question where the  court          below was not presented with either a legal argument or a factual          predicate  on   which  to  make   a  reasoned  analysis   of  any          compensatory component  of prejudgment  interest and where  we do          not have the benefit of a properly briefed argument.                                      CONCLUSION                                      CONCLUSION                    For  the  foregoing  reasons,  the  decision  below  is          affirmed.          affirmed          ________                                         -19-
