                        T.C. Memo. 2010-281



                     UNITED STATES TAX COURT



        SHEILA A. AND RAMON J. JEANMARIE, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 7815-08.                Filed December 22, 2010.



     Sheila A. and Ramon J. Jeanmarie, pro se.

     Brock E. Whalen, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     THORNTON, Judge:   Respondent determined a $2,491 deficiency

in petitioners’ 2005 Federal income tax and a $623 addition to

tax pursuant to section 6651(a)(1).

     The issues for decision are:   (1) Whether $15,420 in

disability benefits that Ramon J. Jeanmarie (petitioner) received

in 2005 from the Office of Personnel Management (OPM) is
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excludable from income pursuant to section 104(a)(4); (2) whether

petitioners failed to report interest income totaling $150 on

their joint 2005 Form 1040, U.S. Individual Income Tax Return;

and (3) whether petitioners are liable for the section 6651(a)(1)

addition to tax for failure to timely file their joint 2005

Federal income tax return.    Unless otherwise indicated, all

section references are to the Internal Revenue Code for the year

at issue and all Rule references are to the Tax Court Rules of

Practice and Procedure.    All dollar amounts have been rounded to

the nearest dollar.

                           FINDINGS OF FACT

     The parties have stipulated some facts, which we so find.

When they petitioned the Court, petitioners resided in Texas.

     Petitioner served in the U.S. Army from 1976 until 1979,

when he received an honorable discharge.      After he left the Army,

he was employed as a civil service employee of the U.S. Navy.      He

retired in 1988 and began receiving disability benefits from OPM

under the Civil Service Retirement System (CSRS).

     In 2005 petitioner received from OPM $15,420 in disability

benefits under the CSRS.    These distributions were reported to

respondent and categorized as “3-DISABILITY” payments on the Form

CSA 1099R, Statement of Annuity Paid, that OPM issued.     In 2005

petitioners also received $43 of interest from FirstLight Federal

Credit Union (FirstLight) and $107 of interest from the
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Department of the Treasury (Treasury Department) upon the

redemption of a U.S. savings bond.

     On their joint 2005 Federal income tax return, filed October

16, 2006, petitioners failed to report the $15,420 in

distributions from OPM and the $150 of aggregate interest

received from FirstLight and the Treasury Department.

                                OPINION

     Petitioners bear the burden of proving that respondent’s

determinations are in error.    See Rule 142(a).1

I.   Disability Benefits

     In Jeanmarie v. Commissioner, T.C. Memo. 2003-337 (Jeanmarie

I), petitioners litigated the taxability of petitioner’s

disability benefits received during tax year 1999.    In that case

this Court ruled that the disability benefits, also classified as

“3-DISABILITY” payments by OPM, were not excludable from income

under section 104 and consequently petitioners were required to

include them on their joint 1999 return.    Id.

     The doctrine of collateral estoppel is intended to avoid

repetitious litigation by precluding the relitigation of any

issue of fact or law that was actually litigated and that

resulted in a final judgment.    See Montana v. United States, 440



     1
      Petitioners have not claimed or shown that they meet the
requirements under sec. 7491(a) to shift the burden of proof to
respondent as to any factual issue affecting their liability for
tax.
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U.S. 147, 153 (1979).   Collateral estoppel may apply with respect

to an issue if:   (1) It is identical to one decided in prior

litigation; (2) a court of competent jurisdiction rendered a

final judgment in the prior litigation; (3) the person against

whom collateral estoppel is asserted was a party to the prior

litigation; (4) the parties actually litigated the issue and the

resolution of the issue was essential to the prior decision; and

(5) the controlling facts and applicable legal rules are

unchanged from those in the prior litigation.     Sawyer Trust v.

Commissioner, 133 T.C. 60, 78 (2009); Peck v. Commissioner, 90

T.C. 162, 166-167 (1988), affd. 904 F.2d 525 (9th Cir. 1990); see

Stovall v. Price Waterhouse Co., 652 F.2d 537, 540 (5th Cir.

1981).

     These requirements are met as to the issue of the taxability

of petitioner’s disability benefits.     This issue is identical to

the sole issue in Jeanmarie I.    This Court, a court of competent

jurisdiction, rendered in Jeanmarie I a final judgment that is no

longer subject to appeal.   See Rule 190(a).    The parties in these

two proceedings are identical.    In Jeanmarie I petitioners fully

litigated the taxability of the disability benefits.    The

resolution of that issue was essential to the judgment in favor

of respondent, as it was the only issue litigated.    Finally, the

controlling facts and applicable legal rules remain unchanged--

the issues in the two cases differ only in that they refer to
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disability payments made in different tax years and for different

amounts.   Petitioners have failed to allege or prove any facts

that would alter the characterization of the disability payments

in this case.

     Accordingly, petitioners are collaterally estopped from

relitigating the taxability of petitioner’s disability benefits.2

But even if collateral estoppel did not apply, petitioners would

not be entitled to exclude the payments from gross income.

Petitioners seek to exclude the payments under section 104(a)(4)

as “amounts received as a pension, annuity, or similar allowance

for personal injuries or sickness resulting from active service

in the armed forces of any country”.   Benefits paid under CSRS do

not provide compensation for personal injuries or sickness

incurred in military service so as to be excludable under section

104(a)(4).   Haar v. Commissioner, 78 T.C. 864 (1982), affd. per

curiam 709 F.2d 1206 (8th Cir. 1983); Jeanmarie v. Commissioner,


     2
      Petitioners argue that respondent is estopped from
litigating the taxability of the 2005 disability payments
because, they assert, respondent determined that petitioner’s
1998 payment was properly excluded from gross income. Collateral
estoppel does not apply to any such determination, however, if
for no other reason than that the issue was not one that was
litigated or one upon which a final judicial determination was
made. See Sawyer Trust v. Commissioner, 133 T.C. 60, 78 (2009).
“The mere acceptance or acquiescence in returns filed by a
taxpayer in previous years creates no estoppel against the
Commissioner nor does the overlooking of an error in a return
upon audit create any such estoppel.” Mora v. Commissioner, T.C.
Memo. 1972-123; see Dixon v. United States, 381 U.S. 68, 72-73
(1965); Auto. Club of Mich. v. Commissioner, 353 U.S. 180, 183-
184 (1957); McGuire v. Commissioner, 77 T.C. 765, 779-780 (1981).
                                - 6 -

supra.    We sustain respondent’s determination that the disability

payments are includable in petitioners’ gross income for taxable

year 2005.

II.   Interest Income

      Section 61 defines gross income broadly as “all income from

whatever source derived,” which includes interest income.    Sec.

61(a)(4).    In 2005 petitioners received $43 of interest from

FirstLight and $107 of interest from the Treasury Department.

They have offered no reason for not reporting the interest

income.    We sustain respondent’s determination with respect to

this issue.

III. Section 6651(a)(1) Addition to Tax

      Section 6651(a)(1) imposes an addition to tax for failure to

file a timely return unless the taxpayer establishes that the

failure “is due to reasonable cause and not due to willful

neglect”.    It is undisputed that petitioners did not timely file

their Federal tax return for taxable year 2005.    Respondent has

met his burden of production under section 7491(c).    Higbee v.

Commissioner, 116 T.C. 438, 447 (2001).    Petitioners have not

alleged or established that they had reasonable cause for failing

to file a timely return.    Accordingly, petitioners are liable for

the section 6651(a)(1) addition to tax.
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IV.   Section 6673(a)(1) Penalty

      Section 6673(a)(1) authorizes the Court to impose a penalty,

not to exceed $25,000, if it appears that the taxpayer has

instituted or maintained proceedings primarily for delay.

Petitioners have deluged this Court with motions repeatedly

seeking delay.   They refused to participate in good faith in the

stipulation process.   The primary issue which they have sought to

litigate in this proceeding was decided adversely against them in

Jeanmarie I.   Cf. Sydnes v. Commissioner, 74 T.C. 864, 872-873

(1980) (imposing a section 6673 penalty on the Court’s own motion

where the taxpayers had attempted twice to relitigate an issue

previously decided against them), affd. 647 F.2d 813 (8th Cir.

1981).   These various considerations make us think that

petitioners have instituted this proceeding primarily for delay.

While we decline to impose a penalty today, we warn petitioners

that they may be subject to a section 6673 penalty, even on the

Court’s own motion, if they persist in maintaining proceedings in

this Court primarily for delay.

      To reflect the foregoing,


                                           Decision will be entered

                                      for respondent.
