                                 T.C. Memo. 2017-129



                           UNITED STATES TAX COURT



                LLOYD ANTHONY RAJCOOMAR, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 13668-16.                            Filed July 3, 2017.



      Lloyd Anthony Rajcoomar, pro se.

      Christopher D. Davis and Gerald Mackey, for respondent.



               MEMORANDUM FINDINGS OF FACT AND OPINION


      LAUBER, Judge: The Internal Revenue Service (IRS or respondent) deter-

mined a deficiency of $3,780 with respect to petitioner’s Federal income tax for

2013.1 Petitioner has conceded all of the adjustments set forth in the notice of


      1
          All statutory references are to the Internal Revenue Code in effect for the
                                                                         (continued...)
                                           -2-

[*2] deficiency. The sole issue remaining for decision, which petitioner raises by

way of offset, is whether he may exclude from gross income under section

104(a)(2), as damages received “on account of personal physical injuries or phy-

sical sickness,” proceeds that he received under a settlement agreement with his

former employer. Concluding as we do that the answer to this question is “no,”

we will sustain the deficiency.

                                  FINDINGS OF FACT

        The parties filed a stipulation of facts with attached exhibits that is incor-

porated by this reference. Petitioner resided in New York when he filed his peti-

tion.

        Before 2013 petitioner was employed by Mount Saint Mary College (col-

lege) as a campus safety officer. In January 2011 he was seriously injured in a car

accident unrelated to his employment. The trucking company whose vehicle rear-

ended his car eventually paid him a $1.75 million damage award, which he re-

ceived in 2015. That recovery is not at issue here.

        Petitioner had several surgeries because of the injuries he suffered in the car

crash. These injuries caused him to go on short-term disability leave from the

        1
       (...continued)
tax year in issue, and all Rule references are to the Tax Court Rules of Practice and
Procedure. We round all monetary amounts to the nearest dollar.
                                        -3-

[*3] college in October 2012. In February 2013 he had ankle surgery, also

connected with the injuries he suffered in the car crash, and he remained on short-

term disability leave. On April 17, 2013, the college informed him that he was

near the end of his maximum disability leave period and that, if he did not return

to work by April 30, his employment would be terminated.

      Petitioner replied that, if he returned to work, he would be unable to per-

form his usual patrol duties because he needed to use crutches or wear a protective

boot. He asked to be shifted to a more sedentary position. The college declined to

permit such a change, insisting that he return to work “without restrictions.” He

did not return to work by the deadline, and he was fired.

      In response to his firing petitioner filed a complaint in May 2013 with the

New York State Division of Human Rights (Division) and a similar complaint

with the Equal Opportunity Employment Commission (EEOC). In the Division

complaint, which he captioned “Description of Discrimination,” he alleged that

“the college discriminated against me on the basis of my disability” and that it had

failed to offer him a “reasonable accommodation.” In support of this claim he

cited the college’s April 17 letter, which stated: “You will be expected to return to

work without restrictions or face termination of employment.”
                                         -4-

[*4] Petitioner alleged that Caucasian employees had been allowed the type of

“reasonable accommodation” that the college refused to make for him. He did not

allege that he had suffered any physical injury for which the college was respon-

sible, and he did not seek compensation for any physical injury. Rather, he urged

the Division to “investigate and defend me against the discrimination that I faced

based on my disabilities while under the * * * [college’s] employ.”

      In September 2013 petitioner and the college settled this dispute by exe-

cuting a “Conciliation Agreement and General Release.” This document recited

that petitioner had filed complaints with the Division and the EEOC alleging that

the college had “committed unlawful discriminatory practices relating to his em-

ployment because of disability.” While the Division had made no findings regard-

ing these allegations, the parties “desire[d] to resolve all pending litigation” by

executing the settlement.

      In exchange for a monetary payment petitioner agreed to withdraw with

prejudice the complaints he had filed with the Division and the EEOC. He agreed

to release any claim he might have had against the college for “compensation in

any form” arising from “the term and conditions of * * * [his] employment” or the

termination of his employment. He specifically released any claims arising under

any Federal or State law “prohibiting employment discrimination based upon age,
                                         -5-

[*5] race, color, sex, religion, handicap or disability.” The agreement does not

recite any allegation of physical injury, and petitioner did not release the college

from any claim of physical injury. The parties agreed that “a Form W-2 will be

issued” for the settlement payment “less legal withholdings.”

      The college issued petitioner a Form W-2, Wage and Tax Statement, report-

ing the settlement amount as wages for 2013. He timely filed Form 1040, U.S.

Individual Income Tax Return, for 2013, reporting the proceeds as wages on

line 7. On March 14, 2016, the IRS sent him a timely notice of deficiency that ad-

justed his Social Security income, reduced a claimed casualty loss deduction, and

disallowed a claimed deduction for gambling losses.

      Petitioner timely petitioned this Court. Before trial he conceded all of the

adjustments in the notice of deficiency. By way of offset he contended that he had

erred in treating the settlement payment as taxable income and that it was exclud-

able from gross income in its entirety under section 104(a)(2).

                                      OPINION

      The IRS’ determinations in a notice of deficiency are generally presumed

correct though the taxpayer can rebut this presumption. Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933). In certain circumstances the burden of proof

on factual issues may shift to respondent. See sec. 7491(a); Rule 142(a)(1). Peti-
                                        -6-

[*6] tioner does not contend, and the record does not demonstrate, that this

provision applies here.

      Section 61(a) defines “gross income” as “all income from whatever source

derived.” This definition has broad scope, and exclusions from gross income must

be narrowly construed. Commissioner v. Schleier, 515 U.S. 323, 328 (1995);

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

Clifford, 309 U.S. 331, 334 (1940). Proceeds from litigation settlements consti-

tute gross income unless the taxpayer proves that the proceeds fall within a specif-

ic statutory exclusion. Schleier, 515 U.S. at 328-337; Save v. Commissioner, T.C.

Memo. 2009-209, 98 T.C.M. (CCH) 218.

      The exclusion from gross income upon which petitioner relies appears in

section 104(a)(2). It provides that gross income does not include “the amount of

any damages (other than punitive damages) received (whether by suit or agree-

ment * * *) on account of personal physical injuries or physical sickness.” Con-

gress intended this exclusion to cover all nonpunitive damages that flow from a

physical injury or physical sickness. See H.R. Conf. Rept. No. 104-737, at 301

(1996), 1996-3 C.B. 741, 1041. For this purpose, “emotional distress shall not be

treated as a physical injury or physical sickness.” Sec. 104(a) (penultimate sen-

tence).
                                        -7-

[*7] When damages are received under a settlement agreement, the nature of the

claim that was the actual basis for the settlement determines whether the damages

are excludable under section 104(a)(2). United States v. Burke, 504 U.S. 229, 237

(1992). “The nature of the claim” is typically determined by reference to the terms

of the agreement. See Knuckles v. Commissioner, 349 F.2d 610, 613 (10th Cir.

1965), aff’g T.C. Memo. 1964-33, 23 T.C.M. (CCH) 182. If the settlement agree-

ment does not explicitly state which claims the payment was made to settle, “the

intent of the payor * * * is critical.” Longoria v. Commissioner, T.C. Memo.

2009-162, 98 T.C.M. (CCH) 11, 15; see Devine v. Commissioner, T.C. Memo.

2017-111, at *11; George v. Commissioner, T.C. Memo. 2016-156, at *7.

      The intent of the payor may be determined by taking into consideration all

of the facts and circumstances, including the amount paid, the circumstances lead-

ing to the settlement, and the allegations in the injured party’s complaint. Green v.

Commissioner, 507 F.3d 857, 868 (5th Cir. 2007), aff’g T.C. Memo. 2005-250, 90

T.C.M. (CCH) 436; Bent v. Commissioner, 87 T.C. 236, 245 (1986), aff’d, 835

F.2d 67 (3d Cir. 1987). “[T]he nature of underlying claims cannot be determined

from a general release [of claims] that is broad and inclusive.” Ahmed v. Com-

missioner, T.C. Memo. 2011-295, 102 T.C.M. (CCH) 607, 608 (citing Connolly v.
                                        -8-

[*8] Commissioner, T.C. Memo. 2007-98, 93 T.C.M. (CCH) 1138), aff’d, 498 F.

App’x 919 (11th Cir. 2012)).

      Petitioner’s cause of action was based exclusively on the New York Human

Rights Law and comparable provisions of Federal law that prohibit discrimination

on the basis of disability. Nowhere in his complaint or in his 12-page rebuttal to

the college’s response to that complaint did he allege any physical injury or phys-

ical sickness for which the college should be liable. The settlement agreement

does not mention any physical injury or physical sickness that he suffered while on

the job, much less allocate any portion of the settlement to claims therefor.

      By executing the settlement petitioner released the college from any claims

arising under any Federal or State law “prohibiting employment discrimination

based upon age, race, color, sex, religion, handicap or disability” as well as from

any claim for compensation arising from “the term and conditions of * * * [his]

employment” or the termination of his employment. There is no suggestion in this

provision that petitioner had made, or was releasing the defendants from, any

claims for damages on account of physical injury or physical sickness. See Molina

v. Commissioner, T.C. Memo. 2013-226, 106 T.C.M. (CCH) 371, 373-374. The

parties explicitly recited their agreement that “a Form W-2 will be issued,” reflect-

ing their understanding that the settlement proceeds replaced lost wages.
                                         -9-

[*9] At trial petitioner acknowledged that he had to demonstrate some physical

injuries apart from those suffered in the 2011 car crash in order to render the set-

tlement payment “damages received * * * on account of personal physical injuries

or physical sickness.” See sec. 104(a)(2). He testified vaguely that the college’s

alleged discrimination had exacerbated his earlier injuries, e.g., by causing him

headaches. But he pointed to no medical evidence to support this. The only medi-

cal bills in the record relate to his February 2013 ankle surgery and a followup

visit six months after his employment was terminated by the college.

      In sum, there is no credible evidence that petitioner suffered any on-the-job

physical injury for which the college might be thought to have compensated him.

His complaint and the agreement that settled his complaint uniformly refer to

claims of disability-based discrimination in alleged violation of Federal and State

civil rights laws. We accordingly conclude that petitioner has not borne his bur-

den of proving that any portion of the settlement proceeds was excludable from

gross income under section 104(a)(2).

      To reflect the foregoing,


                                               Decision will be entered for

                                        respondent.
