                          T.C. Summary Opinion 2015-21



                         UNITED STATES TAX COURT



   JAMES F. MARRAN, JR., AND FRANCINE W. MARRAN, Petitioners v.
        COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 30016-13S.                         Filed March 18, 2015.



      James F. Marran, Jr., and Francine W. Marran, pro sese.

      Derek S. Pratt, for respondent.



                              SUMMARY OPINION


      ARMEN, Special Trial Judge: This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect when the

petition was filed.1 Pursuant to section 7463(b), the decision to be entered is not



      1
        Unless otherwise indicated, all subsequent section references are to the
Internal Revenue Code in effect for 2011, the taxable year in issue.
                                        -2-

reviewable by any other court, and this opinion shall not be treated as precedent

for any other case.

      Respondent determined a deficiency in petitioners’ Federal income tax of

$812 for 2011.

      The issue for decision is whether proceeds of $3,200 received by petitioners

in 2011 from the settlement of a dispute are excludable from their gross income.

We hold that such proceeds are not excludable.

                                    Background

      Some of the facts have been stipulated, and they are so found. We

incorporate by reference the stipulated facts and related exhibits.

      At the time that the petition was filed petitioners resided in the State of

Arizona.

      Petitioner Francine W. Marran was previously employed by North

Scottsdale Pediatric Associates PC (NSPA). While so employed Mrs. Marran

participated in an employer-sponsored retirement plan, and contributions to her

plan account were made by NSPA.

      Mrs. Marran’s employment with NSPA ended in August 2008. For that

year NSPA did not make any contribution to Mrs. Marran’s retirement account.
                                        -3-

      Sometime after her employment with NSPA had ended, Mrs. Marran, along

with petitioner James F. Marran, Jr., who was acting on his wife’s behalf, became

involved in a dispute with NSPA regarding the lack of a contribution to Mrs.

Marran’s retirement account for 2008.

      In February 2011 NSPA and petitioners entered into a settlement agreement

that resolved the parties’ dispute. The agreement stated in relevant part as

follows:

      1. NSPA recognizes a dispute concerning the defined benefit plan
      and the profit sharing plan for Fran Marran who ended her service
      with NSPA in August of 2008.

      2. Fran, thru her agent (her husband, James F. Marran, Jr. a.k.a. “Jay
      Marran”), believes she should have been entitled to a benefit under
      the NSPA retirement plans for 2008, based on IRS rules governing
      Top Heavy plans.

      3. NSPA believes it was within its rights to terminate the Defined
      Benefit Plan and make no retirement plan contributions for 2008.
      Survival of the business was dependent on the ability to cut costs,
      therefore, no retirement contributions were made for 2008 across the
      board for all employees and this decision favored no class of
      employee. There was widespread awareness of this by all those in
      management roles and NSPA and notice was provided. The view that
      no retirement plan contributions were required for 2008 was
      supported by Bob Bessen, the actuary and third party administrator
      for the Defined Benefit Plan and the corporate attorney, Tom
      Lawless, and many communications regarding the basis for this
      position have been documented by Tom Lawless.
                                -4-

4. Jay Marran did file a complaint with the Dept. of Labor who conducted
an investigation and found no evidence of wrongdoing. Upon persistent
requests from Mr. Marran, the matter has been turned over to the IRS.
Nearly a year has passed and no investigation by the IRS has occurred.

5. Mr. Marran continues to make requests to NSPA regarding this dispute.

6. In an attempt to end the dispute, NSPA Board has offered a payment of
$3,200 to Fran Marran based on an estimate of the contribution Fran would
have received under the NSPA profit sharing plan if a 2008 contribution had
been made equal to 5% of her 2008 compensation plus a realistic rate of
return.

7. This offer of $3,200 is contingent upon the following:
      a. The Marrans agree to withdraw their complaint.
      b. Since the Marrans have no control over the actions of the IRS, in
      the event the IRS should conduct an investigation and require a 2008
      contribution to a NSPA retirement plan, the Marrans agree to return
      this payment of $3,200 to NSPA upon receipt of evidence that the
      apportioned contribution has been made to the NSPA Profit Sharing
      Plan and that Fran would receive the apportioned contribution from
      the NSPA Profit Sharing Plan.
      c. The Marrans agree that this offer is confidential.
      d. The Marrans agree to consider this matter resolved.
      e. The Marrans agree to this offer in writing.

8. This offer does not in any way indicate that NSPA agrees with the
Marrans’ position that a contribution and/or benefit was required to be made
to a retirement plan for 2008.

9. Upon receipt of this agreement signed by both Fran and Jay Marran, with
each of their signatures witnessed by a notary, NSPA will issue a check to
Francine Marran within 5 business days and the check will be sent to the
address listed below.
                                       -5-

      For payment of $3,200 to Francine Marran from NSPA, we, Francine and
      Jay Marran (the “Marrans”), understand and agree to all of the conditions
      listed in section 7 of this Agreement.

      Pursuant to the settlement agreement, NSPA issued a check for $3,200 to

Mrs. Marran in February 2011. Mrs. Marran received the check, negotiated it, and

was thereafter free to use the proceeds for any purpose she deemed appropriate.

      NSPA issued a Form 1099-MISC, Miscellaneous Income, for 2011

reporting that Mrs. Marran had received $3,200 in that year.

      Petitioners timely filed a Form 1040, U.S. Individual Income Tax Return,

for 2011. They did not include the $3,200 payment from NSPA in income, nor did

they otherwise disclose the receipt of such payment.

                                   Discussion2

      Section 61(a) provides generally that “gross income means all income from

whatever source derived”. Gross income is an inclusive term with broad scope,

designed by Congress to “exert * * * ‘the full measure of its taxing power.’”

Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 429 (1955) (quoting

Helvering v. Clifford, 309 U.S. 331, 334 (1940)). In contrast, exclusions from

income are matters of legislative grace and are narrowly construed, Commissioner


      2
        The Court decides the issue in this case without regard to any burden of
production or burden of persuasion. See secs. 6201(d), 7491(a).
                                       -6-

v. Schleier, 515 U.S. 323, 328 (1995), and taxpayers seeking an exclusion from

income must be “within the clear scope of the exclusion”, Dobra v. Commissioner,

111 T.C. 339, 349 n.16 (1998).

      Petitioners argue that “[t]he settlement payment simply restored Francine to

the position she was in prior to NSPA’s adverse action against her” and that, as a

consequence, such payment is not includable in their income.

      If NSPA had made a contribution to Mrs. Marran’s retirement account in

2008, such contribution would not have been immediately taxable to her, but

distributions from the retirement account thereafter would most certainly have

been. See secs. 72, 402. But the fact of the matter is that NSPA did not make any

contribution to Mrs. Marran’s retirement account. Rather, NSPA made a payment

to Mrs. Marran directly, and it was she who negotiated the check and acquired

dominion and control over the proceeds with the right to do with those proceeds as

she wished. As the Supreme Court instructs, we give effect to what actually

happened and not what might have happened. Don E. Williams Co. v.

Commissioner, 429 U.S. 569, 579 (1977) (citing Commissioner v. Nat’l Alfalfa

Dehydrating & Milling Co., 417 U.S. 134, 148-149 (1974)). Thus, petitioners’

argument that the $3,200 payment was excludable from gross income as an

employer contribution to a retirement plan is unsupportable.
                                         -7-

                                      Conclusion

      The Court has considered all of the arguments advanced by petitioners, and

to the extent not expressly addressed, the Court concludes that those arguments are

without merit, irrelevant, or moot.

      In sum, the $3,200 payment received in 2011 by Mrs. Marran is not

excludable from petitioners’ gross income. Respondent’s deficiency

determination is therefore sustained.

      To give effect to our disposition of the disputed issue,


                                                     Decision will be entered for

                                               respondent.
