United States Tax Court
T.C. Memo 2010-9 (2010)
In 1996, Julie Domeny (plaintiff) was diagnosed as suffering from multiple sclerosis (MS). Beginning in 2000, Domeny worked as a fundraiser for the Pacific Autism Center for Education (PACE). On several occasions, Domeny went to PACE’s board and complained that her supervisor had interfered with her work and embezzled the funds she raised. Domeny claimed that the resultant stress worsened her MS symptoms. PACE’s board repeatedly failed to provide Domeny with any relief. In 2005, Domeny’s doctor ordered her to take a brief sick leave to address her MS symptoms. Shortly after Domeny began her sick leave, PACE fired her. This led to an even more serious deterioration in Domeny’s condition, such that she was unable to work anywhere else for a year. Domeny had several legal grounds for suing PACE over her firing, but her lawyer and PACE agreed to a settlement. Under the settlement agreement, Domeny released her legal claims, and PACE paid her two sums. The first payment was compensation for Domeny’s 2005 work. The settlement agreement gave no reason for the second payment (the disputed payment), which PACE showed on its books as non-employee compensation. PACE did not deduct taxes from the disputed payment or include it in the 2005 tax statement that PACE sent to Domeny. The commissioner of internal revenue (commissioner) (defendant) determined that Domeny should have reported the disputed payment as gross income. Domeny petitioned the tax court for a redetermination, arguing that the disputed payment was made on account of her MS.
Rule of Law
Holding and Reasoning (Gerber, J.)
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