                        T.C. Memo. 2011-44



                      UNITED STATES TAX COURT



                 BARON L. OLIVER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 5231-06, 16845-06.     Filed February 24, 2011.



     Baron L. Oliver, pro se.

     Ric D. Hulshoff, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     COHEN, Judge:   Respondent determined Federal income tax

deficiencies and additions to tax as follows:
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                                   Additions to Tax
Year    Deficiency   Sec. 6651(a)(1) Sec. 6651(a)(2)   Sec. 6654(a)

2000    $10,163.00     $1,234.80           $2,540.75      $265.40
2001      6,082.00        999.00              954.60        -0-
2002     88,833.00     19,987.43           13,769.12        -0-
2003     37,460.00      6,345.00            3,384.00       711.05
2004     26,141.80      5,794.61            1,545.23       746.32

In an amendment to the answer, respondent asserted an increased

deficiency and additions to tax for 2001 that were based on

income not included in the notice of deficiency but now

stipulated.    Unless otherwise indicated, section references are

to the Internal Revenue Code in effect for the years in issue,

and Rule references are to the Tax Court Rules of Practice and

Procedure.

       After concessions, the issues for decision are whether

settlement proceeds of $201,000 petitioner received during 2002

were taxable; whether petitioner received income from real

property sold in 2004 and, if so, how much; whether petitioner is

entitled to deductions or exemptions not allowed in the statutory

notices; whether petitioner is liable for additions to tax under

section 6651(a)(1) for each year; and whether petitioner is

liable for additions to tax under section 6654 for 2000, 2003,

and 2004.

                          FINDINGS OF FACT

       Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.    At all

material times, petitioner resided in Arizona and was married to
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Micka Oliver.    Petitioner and Micka Oliver (the Olivers) were

married in 1970.

     Prior to April 3, 2001, petitioner was employed by Qwest

Corp. (Qwest).    On July 9, 1997, petitioner filed a complaint

against Qwest in the Arizona Superior Court (the Qwest lawsuit).

On August 31, 1998, petitioner and Qwest entered into a

stipulation regarding the scope of the Qwest lawsuit, limiting

petitioner’s claims to his common law claims, claims he was

subjected to a “hostile environment” because of an alleged

disability, and claims of failure to provide a reasonable

accommodation.

     Petitioner’s “disability discrimination” claim was based on

four discrete incidents:

          Petitioner’s claim that his supervisor failed to
     inform him about an American Indian Leadership
     Initiative * * * training session;

          Petitioner’s claim that his supervisor improperly
     scheduled him to work on a weekend prior to a planned
     vacation;

          Petitioner’s claim that he was laughed at in
     response to his request for a workstation near the door
     in a new crew room; and

          Petitioner’s claim that he was improperly denied
     sick benefits on April 21, 1996.

     Petitioner’s “reasonable accommodation” claim was based on

two specific requests:

          Petitioner’s request for a workstation near a
     door; and
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          Petitioner’s request for a vehicle with a factory
     air conditioning, as opposed to after-market air
     conditioning.

     Petitioner also filed a lawsuit in the U.S. District Court

for the District of Arizona and participated in an arbitration of

a grievance relating to his discharge by Qwest and to a dispute

over unemployment insurance.

     On April 19, 2002, Qwest and petitioner and Micka Oliver

(the Olivers) entered into a Settlement Agreement and Release of

All Claims (the settlement agreement) and a Side Letter of

Understanding Re Settlement Agreement and Release of All Claims

Between Qwest Corporation and the Olivers (the side letter).

Under the settlement agreement, as provision “First”, Qwest

agreed to pay to the Olivers the sum of $201,000 “for alleged

personal injuries, including emotional distress and compensatory

damages; no portion of which represents payment of back,

severance or front pay or lost benefits.”   The parties to the

settlement agreement agreed to dismiss or withdraw pending

lawsuits or administrative proceedings and released all claims

between them.

     Provision “Tenth” of the settlement agreement stated in

part:

          The Olivers acknowledge and agree that Defendants
     have not made any representations to them regarding the
     tax consequences of any amounts received by them
     pursuant to this Agreement. Defendants shall issue to
     Baron Oliver * * * an IRS Form 1099 covering the
     payments described in Paragraph FIRST. The Olivers
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     agree to pay all federal or state taxes, if any, which
     are required by law to be paid with respect to this
     settlement. * * *

     The side letter contained additional provisions relating to

petitioner’s retirement and pension benefits, including the

following:

          The parties further recognize that Mr. Oliver will
     be permitted to make a lump sum rollover of his pension
     to an account of his own choosing. The amount of
     benefit for which Mr. Oliver is eligible is as follows:

               a. Total benefit which would have been
          payable on 5/1/2001, if then service pension
          eligible (i.e., 30 years) of service on that
          date), payable as lump sum: $19,692.81;

               b. Benefit already received by
          participant, as a lump sum: $70,215.13;

               c. Net benefit, payable as a lump sum
          on 5/1/2001: $122,477.68; and

               d. Lump sum, with interest, payable on
          5/1/2002: $129,471.16

Petitioner subsequently received distributions from a rollover

individual retirement account created pursuant to the side

letter.

     In 2004, petitioner and/or his wife sold real property in

Oklahoma for $65,000.   The property was previously petitioner’s

mother-in-law’s home.

     Petitioner did not file Federal income tax returns for any

of the years in issue before the notices of deficiency were

issued.   During the course of settlement negotiations while this

case was pending, petitioner submitted to respondent a series of
                               - 6 -

unsigned Forms 1040, U.S. Individual Income Tax Return, for the

years in issue.   The forms purported to be joint returns, but

Micka Oliver declined to sign documents necessary for joint

filing rates to be used in calculating petitioner’s liability.

     On the tendered Form 1040 for 2004, petitioner reported a

$35,000 capital gain from the sale of the Oklahoma property, the

difference between a sale price of $65,000 and a cost basis of

$30,000.   That Form 1040 was submitted solely for the basis of

settlement.   Respondent has conceded that petitioner’s basis in

the property was $30,000.

                              OPINION

     The record in these cases reflects a long and tortured

history, and much of the record is incomprehensible.   The cases

were filed in 2006 and were tried in December 2009 after two

continuances, including a period during which a Judge retained

jurisdiction and oversaw attempts to settle.   Part of the

settlement negotiations involved submissions by petitioner and

his wife in order to give them the benefits of income splitting

and joint return rates.   When settlement negotiations failed, a

statutory notice of deficiency was sent to petitioner’s wife in

2009, and she filed a petition in response.    See Oliver v.

Commissioner, T.C. Memo. 2011-43, filed this date.

     Respondent sought to have petitioner’s wife’s case

consolidated with petitioner’s cases, but petitioner objected.
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The Court denied respondent’s motion to consolidate and

petitioner’s subsequent motion to continue his cases without

consolidating them with his wife’s case, because delay was not

improving the preparation of these cases for trial.   Thus these

cases proceeded to trial, and petitioner’s wife’s case was tried

separately months later.   Petitioner continues to make arguments

based on a stipulation proposed during the time that negotiations

included an assumption that petitioner’s wife would be involved

in resolution of these cases, but that stipulation was not filed,

petitioner’s motion to compel that stipulation was denied, and

it is superseded by the stipulation filed and exhibits received

at trial.

     Petitioner has consistently denied that the income in issue

received by him during the years in issue is community property,

despite having received the income during a long marriage.    For

purposes of these cases, respondent does not contend that the

income is community income but has proposed resolution of

petitioner’s cases and his wife’s case “in tandem” to avoid

inconsistent results.   To the extent that none of the parties in

any of the cases contends that disputed items of income are

community property, treating the income as separate property of

petitioner does not lead to inconsistent results.   Although the

stipulation sets forth certain items of income, including Social

Security disability benefits petitioner’s wife received, these
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amounts do not appear in the statutory notices and will be

excluded from the computations of petitioner’s taxable income,

avoiding inconsistent results.    To the extent that the record

permits an allocation to petitioner or to his wife, such as gains

from the sale of the Oklahoma property, the decision for 2004

will reflect our findings and the conclusions in this opinion.

Finally, to the extent that undisputed items of income such as

wages are community property under Arizona law, as a matter of

law the share allocable to petitioner’s wife should be excluded

from the computations of petitioner’s tax liability for years in

which that income was received.

     Many of the previously contested issues, such as

petitioner’s liability for section 72(t) additional tax on

withdrawals from his pension account, have been resolved by

concessions. Respondent has conceded several components of the

originally determined deficiencies, and petitioner has stipulated

the receipt of various items of taxable income.    We do not

address all of the arguments and accusations that rehash

procedural history and are irrelevant to the issues to be

decided.

Settlement Proceeds

     The largest remaining issue is the taxability of $201,000 in

settlement proceeds petitioner received in 2002.    All other

income items have been stipulated.
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     The definition of gross income under section 61(a) broadly

encompasses any accession to a taxpayer’s wealth.    Commissioner

v. Schleier, 515 U.S. 323, 327-328 (1995); United States v.

Burke, 504 U.S. 229, 233 (1992).    Absent an exception in another

statutory provision, settlement proceeds must be included in

gross income.   Commissioner v. Schleier, supra at 328; United

States v. Burke, supra at 233.

     Section 104(a)(2) excepts from gross income “the amount of

any damages (other than punitive 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”.

     As to the settlement proceeds, the stipulation states:

          With respect to the 2002 taxable year:

               a. Petitioner agrees that he received
          settlement proceeds from Qwest Corporation in
          the gross amount of $201,000.00 (though he
          does not concede that all such proceeds are
          taxable and reserves the right to argue that
          some portion is excludable from income).

Respondent’s opening brief explains that
     In Respondent’s Pretrial Memorandum, it was
     contemplated that petitioner may attempt to argue that
     the cash settlement proceeds, or some portion thereof,
     were not taxable pursuant to I.R.C. § 104(a), which
     provides that gross income does not include damages
     received on account of personal physical injuries or
     physical sickness. Petitioner did not raise the issue
     and, therefore, respondent will not address it herein.

          Rather, petitioner, in his pretrial memorandum and
     at trial, appears to argue that the cash settlement
     proceeds in the amount of $201,000.00 paid by Qwest in
                              - 10 -

     2002, or some unspecified portion thereof, are not
     taxable because they constitute the same monies
     received pursuant to taxable distributions in 2003 and
     2004. In other words, petitioner contends that the
     cash settlement proceeds were put into some sort of
     retirement vehicle, such that it caused distributions
     to be reported when portions of such funds were
     withdrawn in later years.

As respondent notes, petitioner testified that he used the

settlement proceeds to build a home.   Petitioner has stipulated

the receipt of distributions from his retirement account in

subsequent years and the taxable amount of each distribution.

The source of the distributions appears from the record to be

petitioner’s entitlements under the side letter, totally separate

from the $201,000 payment to which he was entitled under the

settlement agreement.   Although petitioner insists that the

source of the later distributions was the $201,000 payment, there

is neither factual support nor legal authority for petitioner’s

apparent theory as to why the settlement proceeds received in

2002 are not taxable in that year.

     Petitioner also asserts that the dispute with Qwest began

with a “choking incident” and that he was told by attorneys

involved in his Federal District Court case that the settlement

was not taxable.   These assertions, however, are unsupported by

evidence and are contradicted by the stipulation about the issues

in the Qwest lawsuit and the terms of the settlement agreement.

In any event, what he may have been told by unidentified

attorneys is inadmissible and irrelevant.
                               - 11 -

     Petitioner has neither alleged nor proven that any of the

settlement proceeds he received in 2002 is allocable to physical

injuries.   He has not identified any physical injuries sustained

or physical sickness suffered as a result of Qwest’s conduct; and

the settlement agreement, while referring to personal injuries,

does not allow for any allocation to physical injuries or

sickness.   Thus we conclude that no portion of the settlement

proceeds is excludable from taxable income.

Oklahoma Real Property

     Petitioner testified that the Oklahoma property was

purchased when petitioner took over payments on property that was

the home of his mother-in-law.    Respondent has conceded that

petitioner had a basis of $30,000 in the property, which was sold

in 2004.    Petitioner has not presented any reliable evidence of

basis, so respondent’s concession is the maximum that he may be

allowed.    A reasonable inference from the record, however, is

that petitioner and his wife shared equally in the proceeds from

sale of the property.

     The terms of sale of the real property are not in evidence,

partly because petitioner refused to stipulate and objected to

relevant documents respondent obtained from third-party sources.

Petitioner testified that he continued to receive payments after

2004, but we have no way of determining what payments were

received when, how much of the payments represented interest or
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principal, and how much gain would be reportable each year on the

installment method.   We accept, however, respondent’s offer to

resolve this case in tandem with petitioner’s wife’s case.     The

amount of income that petitioner must recognize from the sale of

the real property in 2004 is his community share of the interest

and gain received during that year as decided in Oliver v.

Commissioner, T.C. Memo. 2011-43, rather than the $35,000

determined in the statutory notice.    To that extent, we conclude

that respondent has conceded the excess amount and that

petitioner’s admission in the Form 1040 cannot be given weight

because it was provided as part of settlement negotiations.    See

Fed. R. Evid. 408.

Deductions and Exemptions

     During trial and in his posttrial brief, petitioner has

claimed entitlement to unspecified deductions and to exemptions

for his wife and son.   There is no evidence in the record,

however, that would substantiate any deductions.   Moreover,

because he has not elected to itemize deductions by filing

returns, he is entitled only to the standard deduction.   See sec.

63(e).   The standard deduction is that available to a married

person filing separately, as determined in the statutory notices.

Petitioner has not addressed the requirements for dependency

exemption deductions under section 151 and has not shown that he

qualifies for any dependency exemption deductions.
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Additions to Tax

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

timely file a required return.    Section 6654(a) imposes an

addition to tax for underpayment of required estimated tax.

Respondent has the burden of production under section 7491(c)

with respect to the additions to tax, but that burden is met

where facts stipulated or admitted show that imposition of the

addition to tax is appropriate.    See Higbee v. Commissioner, 116

T.C. 438, 446 (2001).   Petitioner then has the burden of showing

reasonable cause for failure to file timely or an exception to

application of the section 6654(a) addition to tax.     Id.

     Petitioner admits that he did not file timely returns and

claims that he had only minimal income and was not required to

file for years subsequent to the years in issue.    His reference

to minimal income does not apply to the years in issue in view of

the stipulation as to taxable distributions received and our

conclusion as to the taxability of the settlement proceeds in

2002 and the capital gain in 2004.     The income received in each

year exceeded the amount requiring that a return be filed.       See

generally sec. 6012(a); sec. 1.6012-1, Income Tax Regs.       (The

exemption amounts ranged from $3,100 for a married person filing

a separate return to $15,900 for married persons filing jointly

in 2004 and were less in prior years.    See Rev. Proc. 2003-85,

sec. 3.10(1), 3.16(1), 2003-2 C.B. 1184, 1188.    It does not
                              - 14 -

appear that either petitioner or his spouse was age 65 or over in

those years.)

     In his posttrial brief, petitioner refers to health issues

that are not in evidence.   In any event, the continuing failure

to file over a period of years is not excused by occasional

health issues.   See, e.g., Jordan v. Commissioner, T.C. Memo.

2005-266 (and cases cited therein).    Petitioner has not

established reasonable cause for failure to file the returns, and

the additions to tax under section 6651(a)(1) will be sustained.

Respondent has conceded the additions to tax under section

6651(a)(2).

     The parties stipulated to the effect that petitioner had a

tax liability of $7,018 for 1999.   The notices of deficiency

credited petitioner with amounts withheld in calculating the

underpayment of estimated taxes due for purposes of section 6654.

Because the record establishes that petitioner had a tax

liability for 1999 and that petitioner failed to file returns for

2002 and 2003, he was required to pay estimated taxes equal to 90

percent of the tax owed for 2000, 2003, and 2004.       See sec.

6654(d)(1)(B).   None of the exceptions in section 6654(e)

applies.   The additions to tax, recalculated to reflect

redetermined deficiencies, will be sustained.


                                           Decisions will be entered

                                      under Rule 155.
