                  T.C. Summary Opinion 2007-118



                      UNITED STATES TAX COURT



               EDMUND T. MACMURRAY, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent*



     Docket No. 6596-06S.                 Filed July 11, 2007.



     Edmund T. MacMurray, pro se.

     Michael Bitner, for respondent.


     FOLEY, Judge:   This case was heard pursuant to the

provisions of section 74631 of the Internal Revenue Code in

effect when the petition was filed.    Pursuant to section 7463(b),

the decision to be entered is not reviewable by any other court,


     *
        This opinion replaces our previously filed opinion, T.C.
Summary Opinion 2007-90, which was withdrawn by order on July 6,
2007.
     1
        Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue.
                                - 2 -

and this opinion shall not be treated as precedent for any other

case.   The issues for decision are whether petitioner may exclude

from income a settlement award relating to a lawsuit and is

liable for a section 6662(a) accuracy-related penalty.

                             Background

     Petitioner is a licensed attorney in the State of Michigan.

Prior to 2001, he worked, for 13 years, as an employee for the

Internal Revenue Service.    In 2001, petitioner was an employee of

Duro-Last Roofing, Inc. (Duro-Last), a roofing company based in

Saginaw, Michigan.   On September 11, 2001, Duro-Last terminated

petitioner’s employment.    In response, on December 5, 2001,

petitioner filed a Complaint and Jury Demand (the complaint) with

the Circuit Court of Saginaw County, Michigan.    The complaint

alleged that Duro-Last had violated the State of Michigan

Whistleblower’s Protection Act, and that, based on Duro-Last’s

wrongful actions, petitioner suffered damages.

     Subsequent to the filing of the complaint, the matter was

referred to mediation.   In 2003, as a result of mediation, Duro-

Last paid petitioner $80,000.    In addition to its payment, Duro-

Last issued petitioner a Form 1099-MISC, Miscellaneous Income.

Petitioner attached the Form 1099-MISC to his Form 1040, U.S.

Individual Income Tax Return, but did not include the settlement

award in gross income.

     On January 3, 2006, respondent sent petitioner a notice of
                               - 3 -

deficiency relating to 2003.   Respondent determined that

petitioner failed to report the settlement award and was liable

for a section 6662(a) accuracy-related penalty.    On April 5,

2006, petitioner, while residing in Boynton Beach, Florida, filed

his petition with the Court.

                             Discussion

     Petitioner contends that the settlement award he received

was compensation for personal injuries and, pursuant to section

104(a)(2), is excludable from gross income.    Respondent contends

that the settlement award should have been included in

petitioner’s gross income.

     Section 104(a)(2) provides 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 physical injuries or physical

sickness”.   Thus, an amount may be excluded from gross income

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.    See

Commissioner v. Schleier, 515 U.S. 323, 336-337 (1995); sec.

1.104-1(c), Income Tax Regs.

     Petitioner contends that his settlement award meets the

requirements of section 104(a)(2).     Petitioner, however, did not

incur any medical expenses, consult with a medical professional,
                                - 4 -

or inform Duro-Last of any physical injury or sickness.    In

short, petitioner’s settlement award was not received on account

of physical injury and is therefore includable in his gross

income.2

     Respondent in his notice of deficiency determined that

petitioner was liable for a section 6662(a) accuracy-related

penalty.   Section 6662(a) imposes a penalty equal to 20 percent

of the amount of any underpayment attributable to a substantial

understatement of income tax.   Sec. 6662(b)(2).    An

understatement is the amount by which the correct tax exceeds the

tax reported on the return.   Sec. 6662(d)(2)(a).    The

understatement is substantial if it exceeds the greater of $5,000

or 10 percent of the tax required to be shown on the return.

Sec. 6662(d)(1)(A)(i) and (ii).

     An understatement is reduced by the portion of the

understatement that is attributable to the tax treatment of an

item for which there is substantial authority or with respect to

which there is adequate disclosure and a reasonable basis.      See

sec. 6662(d)(2)(B); sec. 1.6662-4(a), (e)(2)(i), Income Tax Regs.

Reasonable basis is a “relatively high standard of tax reporting,

that is, significantly higher than not frivolous or not patently

improper.”   Sec. 1.6662-3(b)(3), Income Tax Regs.    The reasonable


     2
        Sec. 7491(a) is inapplicable because petitioner failed to
introduce credible evidence within the meaning of sec.
7491(a)(1).
                               - 5 -

basis standard is not satisfied by a return position that is

merely arguable or a colorable claim.   Id.   Petitioner did

disclose the receipt of his settlement award by attaching the

Form 1099-MISC and an explanatory addendum to his return.      He did

not, however, have a reasonable basis for his position.    Thus, a

reduction in the understatement, for purposes of the accuracy-

related penalty, is not warranted.

     Section 6664(c)(1) provides that no penalty shall be imposed

if a taxpayer demonstrates that there was reasonable cause for

the underpayment and the taxpayer acted in good faith.    The

determination of whether a taxpayer acted with reasonable cause

and in good faith depends upon the facts and circumstances,

including the experience, knowledge, and education of the

taxpayer.   See sec. 1.6664-4(b)(1), Income Tax Regs.

     Petitioner maintains that he attached the Form 1099-MISC to

his return as “a good-faith effort to show that * * * [he] had

received something that wasn’t subject to tax.”   Petitioner, a

lawyer who had previously worked with the Internal Revenue

Service, failed, however, to make even a minimal effort to

determine whether his position was correct.   In short, he did not

act with reasonable cause when he failed to report his settlement

award as taxable income.   Accordingly, he is liable for the

section 6662(a) accuracy-related penalty.
                                 - 6 -

     Contentions we have not addressed are irrelevant, moot, or

meritless.

     To reflect the foregoing,


                                         Decision will be entered

                                 for respondent.
