                  T.C. Summary Opinion 2002-55



                     UNITED STATES TAX COURT



         GERALDINE M. AND ARTHUR F. REID, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6717-01S.            Filed May 22, 2002.



     Geraldine M. and Arthur F. Reid, pro se.

     Michele A. Yates, for respondent.



     PANUTHOS, Chief Special Trial Judge:   This case was heard

pursuant to the provisions of section 7463 of the Internal

Revenue Code in effect at the time the petition was filed.   The

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

this opinion should not be cited as authority.   Unless otherwise

indicated, subsequent section references are to the Internal

Revenue Code in effect for the year in issue.
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     Respondent determined a deficiency in petitioners’ income

tax of $810 in 1998.    The issue for decision is whether a

settlement payment that Arthur F. Reid (petitioner) received in

1998 is excludable from petitioners’ gross income under section

104(a)(1) or (2).

     Respondent also determined that petitioners (1) received

$322 in income related to the sale of securities, (2) received

$16 in interest income from the State of Virginia, and (3) are

not entitled to a deduction of $107 claimed on Schedule A,

Itemized Deductions.    Petitioners did not present any evidence

concerning these determinations; therefore, we deem them

conceded.    Petitioners resided in Fairfax, Virginia, at the time

they filed the petition.

Background

     In 1995 petitioner worked as a cashier for Chevron Corp.

(Chevron) in Florida.    Petitioner asserts that he lifted a

5-pound bucket of ice at work and injured his shoulder.

Petitioner claimed that he was no longer able to work.    He filed

a claim for workmen’s compensation benefits, but his claim was

denied.   Petitioner’s employment with Chevron ended.   The record

is not clear as to the reason for the termination of petitioner’s

employment.
                               - 3 -

     Petitioner commenced a lawsuit in Florida State court

against Chevron and its subsidiary American Personnel Services,

Inc. (APSI), Reid v. APSI/Chevron, docket No. 96-01490.

Petitioner did not produce to either respondent or the Court a

copy of the complaint.   As indicated in a statement made in

petitioner’s attorney’s letter, we understand that his cause of

action against Chevron was wrongful discharge, intimidation,

coercion, and harassment in violation of Fla. Stat. Ann. sec.

440.205 (West 1998), Coercion of employees.   The parties settled

the litigation in March 1998, and the case was dismissed with

prejudice on March 24, 1998.   Petitioner received $5,000 in

settlement proceeds.

     Petitioner executed a hold harmless agreement pursuant to

which he agreed to indemnify and hold harmless Chevron and APSI

from any and all liens and third-party rights, including

subrogation from any medical care providers, insurance companies,

or any collateral source provider such as Medicare, Medicaid, and

Social Security, and from “any claims of said nature including

any attorney’s fees and costs incurred in defending such

actions”.

     Petitioner also executed a Release and Settlement of Claim

pursuant to which he agreed to release and discharge Chevron and

APSI from the following:
                                - 4 -

     all claims and demands, rights and causes of actions of
     any kind, * * * including any claims for physical
     injuries, psychiatric injuries, psychology injuries,
     loss of employment, claims for violation of Chapter 440
     of the Florida Statutes, claims for threats of
     discharge, intimidation, harassment, coercion, wrongful
     termination, intentional, willful, or malicious
     violations of Statute 440.205, loss of earning
     capacity, emotional or mental anguish, punitive
     damages, mental distress, or any other type of damage
     claimed or viable as a result.

APSI and Chevron executed a stipulation and order of dismissal

with prejudice pursuant to which they agreed to settle the case.

     Petitioners filed their Federal income tax return for 1998

as married filing jointly.   They did not report the $5,000

received from the settlement.   Petitioners allege that Chevron

paid the $5,000 settlement for petitioner’s pain, suffering, and

medical expenses incurred as a result of the injury that occurred

while he was employed by Chevron; therefore, the settlement

proceeds are not includable in gross income.

     Petitioners previously advised respondent (as evidenced by a

copy of a letter) that the settlement proceeds were received as

“the result of a Accident/Disability settlement incurred when I

was hit [by] a Taxicab while riding my bicycle in Florida.    All

monies [were] for Pain & Suffering or went to therapy and

rehabilitation as I was not employed at the time of the

accident.”
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     Respondent asserts that the $5,000 payment represents a

payment in settlement of a lawsuit brought by petitioner for

wrongful discharge from employment by petitioner’s former

employer; therefore, the settlement proceeds are not excludable

from gross income under section 104(a)(2) and are taxable.

Discussion

     Section 104(a)(1) and (2)

     Pursuant to section 104(a)(1), amounts received under

“workmen’s compensation acts” as compensation for personal

injuries or sickness are excludable from gross income.    This

section applies to amounts received pursuant to a workmen’s

compensation act or a statute in the nature of a workmen’s

compensation act which provides compensation to employees for

personal injuries or sickness incurred in the course of

employment, but it does not apply to a nonoccupational injury or

sickness.    Sec. 1.104-1(b), Income Tax Regs.

     Under section 104(a)(2), gross income does not include

income received as damages (other than punitive damages) received

(whether by suit or agreement) on account of personal physical

injuries or physical sickness.1    “Damages received” is defined as



     1
        Sec. 104(a)(2) was amended by the Small Business Job
Protection Act of 1996, Pub. L. 104-188, sec. 1605(a), 110 Stat.
1838, effective for amounts received after Aug. 20, 1996. When
Congress amended sec. 104(a)(2), it further limited the exclusion
from gross income for damages received because of a nonphysical
injury. Because petitioner claims a physical injury is at the
foundation of his cause of action, we may consider the prior
statute, regulations, and caselaw for guidance.
                                   - 6 -

“an amount received (other than workmen’s compensation) through

prosecution of a legal suit or action based upon tort or tort

type rights, or through a settlement agreement entered into in

lieu of such prosecution.”      Sec. 1.104-1(c), Income Tax Regs.

     For the taxpayer’s damages to be excludable from gross

income under section 104(a)(2), the nature of the claim must be a

tort or a tort type right.       United States v. Burke, 504 U.S. 229,

234 (1992); sec. 1.104-1(c), Income Tax Regs.      State law

determines the nature of the legal interests involved.         United

States v. Mitchell, 403 U.S. 190, 197 (1971).      The taxpayer must

also prove that he received the damages on account of personal

injuries or sickness.       Commissioner v. Schleier, 515 U.S. 323,

330 (1995).   Statutory exclusions from income are to be narrowly

construed.    Id. at 328.

     Fla. Stat. Ann. sec. 440.205 provides as follows:      “No

employer shall discharge, threaten to discharge, intimidate, or

coerce any employee by reason of such employee’s valid claim for

compensation or attempt to claim compensation under the Workers’

Compensation Law.”   Fla. Stat. Ann. sec. 440.205 is a statutory

cause of action for wrongful discharge.       Scott v. Otis Elevator

Co., 572 So. 2d 902, 903 (Fla. 1990) (citing Smith v. Piezo Tech.

& Profl. Admrs., 427 So. 2d 182 (Fla. 1983)).      In Scott v. Otis

Elevator Co., supra at 903, the Florida Supreme Court stated:
                                - 7 -

“Section 440.205 reflects the public policy that an employee

shall not be discharged for filing or threatening to file a

workers’ compensation claim.”

     Fla. Stat. Ann. sec. 440.205 falls within title XXXI,

chapter 440, Workers’ Compensation of the Florida Statutes.    The

intent of the Florida legislature with respect to the workers’

compensation laws under chapter 440 is set forth in Fla. Stat.

Ann. sec. 440.015 (West 1998), Legislative intent, and it

provides, in relevant part, as follows:

          It is the intent of the Legislature that the
     Workers’ Compensation Law be interpreted so as to
     assure the quick and efficient delivery of disability
     and medical benefits to an injured worker and to
     facilitate the worker’s return to gainful reemployment
     at a reasonable cost to the employer. * * *

     The Florida workers’ compensation laws were designed to

protect employees and their dependents against the hardship that

arises from an employee’s injury in the course of employment.

Broward v. Jacksonville Med. Ctr., 690 So. 2d 589 (Fla. 1997).

     Petitioner’s Injury and Recovery in Litigation

     We now consider whether the settlement petitioner received

is excludable from gross income by virtue of section 104(a)(1).2

It appears that the lawsuit against Chevron was brought for


     2
        Sec. 7491 does not apply to shift the burden of proof to
respondent on these issues because petitioners have neither
alleged that sec. 7491 is applicable nor established that they
complied with the requirements of sec. 7491(a)(2)(A) and (B) to
substantiate items, maintain required records, and fully
cooperate with respondent’s reasonable requests.
                               - 8 -

wrongful discharge, intimidation, coercion, and harassment under

Fla. Stat. Ann. sec. 440.205, which is a workmen’s compensation

statute.

     Petitioner claims to have sustained an injury in 1995, but

the nature and extent of the injury are unclear.    Petitioner did

not submit to the Court any evidence of his injury such as

medical bills.   At trial, petitioner was unable to provide the

date of his injury.   Petitioner testified that he was injured

while carrying a 5-pound bucket of ice while at work.    This

conflicts with the previous statement by petitioner in a letter

addressed to respondent that he received the $5,000 settlement

because he was hit by a taxicab while bicycling.    Petitioner

explained at trial that the injury from the taxicab was separate

from the claim for which he received the $5,000 at hand.    We find

the inconsistency to be troubling.

     Petitioner did not argue, and we do not conclude, that his

injury was an occupational injury as is required to exclude the

settlement received from gross income under section 104(a)(1).

Sec. 1.104-1(b), Income Tax Regs.    We conclude that the

settlement payment is not excludable from gross income under

section 104(a)(1).

     We now consider whether the settlement payment is excludable

from gross income under section 104(a)(2).    As we have already

concluded, it appears that the lawsuit against Chevron was
                                - 9 -

brought under Fla. Stat. Ann. sec. 440.205, which is a workmen’s

compensation statute.   Under section 1.104-1(c), Income Tax

Regs., the term “damages received” includes an amount received

(other than workmen’s compensation).    We conclude that

petitioner’s settlement was not for other than workmen’s

compensation; therefore, the settlement is not excludable from

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

     In addition, petitioner did not clearly claim and has not

proven and the record does not contain sufficient evidence for us

to conclude that his injury was the proximate cause of the

lawsuit and the settlement.   See Commissioner v. Schleier, supra

at 330.   Language in the settlement agreements contemplates that

petitioner would hold Chevron harmless from medical expenses and

claims for physical injuries.   We are not convinced that this

language indicates that the settlement was paid to compensate

petitioner for an injury and that the language contained in the

hold harmless agreement or release is anything but standard

protective drafting by Chevron.

     Moreover, Fla. Stat. Ann. sec. 440.205 does not specifically

address a physical injury, and it does not provide for damages to

be paid on account of a physical injury, which is the aim of

section 104(a)(2).   Thus, the lawsuit petitioner brought was not
                             - 10 -

clearly based on a physical injury under section 104(a)(2), and

the settlement was not received in lieu of the prosecution of a

physical tort or a tort type injury.

     Accordingly, the settlement received is not excludable from

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

     Reviewed and adopted as the report of the Small Tax Case

Division.

                                   Decision will be entered

                              for respondent.
