T.C. Memo. 2009-87



                       UNITED STATES TAX COURT



                 JUSTIN W. HANSEN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 16247-07.               Filed April 28, 2009.



     Michael B. Kratville, for petitioner.

     J. Anthony Hoefer, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     CHIECHI, Judge:    Respondent determined a deficiency of

$25,998 in, and an accuracy-related penalty of $5,200 under
                               - 2 -

section 6662(a)1 on, petitioner’s Federal income tax (tax) for

his taxable year 2004.

     The issue remaining for decision is whether petitioner is

entitled for his taxable year 2004 to exclude from gross income

under section 104(a)(2) $100,000 of the total of $120,000 that he

received in settlement of several claims against his former

employer.   We hold that he is not.

                         FINDINGS OF FACT

     Some of the facts have been stipulated by the parties and

are so found.

     At the time petitioner filed the petition, he resided in

Indiana.

     From 2000 until 2003, Martin Marietta Materials, Inc.

(Martin Marietta), employed petitioner at a mine near Weeping

Water, Nebraska (Weeping Water mine).

     On a date in early July 2003 before July 7, petitioner’s

supervisor Ray Fleischman (Mr. Fleischman) assaulted petitioner

on a job site by throwing him to the ground and pushing his face

into limestone powder.   (We shall refer to the assault that took

place in early July 2003 as the mine assault.)   Petitioner

sustained some bruises as a result of the mine assault.   Peti-




     1
      All section references are to the Internal Revenue Code in
effect for the year at issue. All Rule references are to the Tax
Court Rules of Practice and Procedure.
                                - 3 -

tioner reported that assault to the plant manager at the Weeping

Water mine.

     On July 7, 2003, Mr. Fleischman engaged in an unsafe working

practice (Mr. Fleischman’s unsafe practice) while on duty at the

Weeping Water mine.   Petitioner reported Mr. Fleischman’s unsafe

practice to the assistant plant manager at that mine and to the

Martin Marietta ethics hotline (Martin Marietta hotline).2

     On July 11, 2003, Mr. Fleischman appeared at petitioner’s

home, threatened him, and assaulted him because petitioner had

reported Mr. Fleischman’s unsafe practice to the assistant plant

manager at the Weeping Water mine and had called the Martin

Marietta hotline.   (We shall refer to the assault that took place

on July 11, 2003, as the home assault.)   Petitioner sustained

some bruises and a small cut on his foot as a result of the home

assault.   Petitioner called the police to report the home as-

sault.   He also reported that assault to the plant manager at the

Weeping Water mine and to the Martin Marietta hotline.

     On July 23, 2003, petitioner called the Mine Safety and

Health Administration (MSHA) to complain about Mr. Fleischman’s

unsafe practice.    MSHA sent an investigator to the Weeping Water

mine to investigate petitioner’s complaint.   Thereafter, that


     2
      During 2003, the Martin Marietta hotline was a company
service that allowed its employees to report on an anonymous
basis to Martin Marietta’s corporate management safety concerns
and other work-related issues.
                               - 4 -

investigator issued a citation to Martin Marietta for a violation

of Federal mine safety regulations concerning work on electri-

cally powered equipment.

     Because of the home assault, on July 24, 2003, petitioner

applied to the District Court of Cass County, Nebraska (Cass

County district court), for a so-called harassment protection

order (protection order) against Mr. Fleischman, which that court

granted on the same date.   On July 28, 2003, the Cass County

district court granted Mr. Fleischman a protection order against

petitioner.

     On July 29, 2003, Martin Marietta terminated petitioner’s

employment at the Weeping Water mine on the ground that peti-

tioner was unable to communicate with fellow employees.

     On August 23, 2003, petitioner filed a discrimination

complaint (petitioner’s Mine Act discrimination complaint)

against Martin Marietta with MSHA under section 105(c) of the

Federal Mine Safety and Health Act of 1977 (Mine Act), Pub. L.

91-173, sec. 105(c), 83 Stat. 753 (current version at 30 U.S.C.

sec. 815(c) (2006)).3   An MSHA investigator interviewed peti-

     3
      Petitioner’s Mine Act discrimination complaint is not part
of the record in this case.

     Sec. 105(c) of the Mine Act, 30 U.S.C. sec. 815(c) (2006),
prohibits a mine operator from firing or discriminating against,
inter alia, an employed miner who has made a complaint against
the employer under any provision of the Mine Act, including,
inter alia, complaints of alleged safety violations at a covered
                                                   (continued...)
                              - 5 -

tioner regarding that complaint.   During that interview, peti-

tioner indicated that he was seeking from Martin Marietta rein-

statement to the position that he had held at that company before

it terminated his employment on July 29, 2003, and all moneys and

benefits to which he would have been entitled if Martin Marietta

had not terminated his employment.

    Because of petitioner’s Mine Act discrimination complaint,

the U.S. Secretary of Labor (Secretary of Labor) filed on peti-

tioner’s behalf a discrimination complaint (petitioner’s FMSHRC

discrimination complaint) against Martin Marietta with the

Federal Mine Safety and Health Review Commission (FMSHRC).4    (We

shall refer collectively to petitioner’s Mine Act discrimination

complaint and petitioner’s FMSHRC discrimination complaint as the

MSHA complaints.)

     On September 10, 2003, petitioner filed a so-called charge

of discrimination against Martin Marietta with the Nebraska Equal

Opportunity Commission (Nebraska discrimination complaint).5    In

     3
      (...continued)
mine site.
     4
      Petitioner’s FMSHRC discrimination complaint is not part of
the record in this case.
     5
      In the Nebraska discrimination complaint, petitioner re-
quested that that complaint also be filed with the Federal Equal
Employment Opportunity Commission (FEEOC). In support of his
complaint to the FEEOC, petitioner relied on Title VII of the
Civil Rights Act of 1964, Pub. L. 88-352, tit. VII, 78 Stat. 253
(current version at 42 U.S.C. secs. 2000e-2000e-17 (2006)), which
                                                   (continued...)
                              - 6 -

the Nebraska discrimination complaint, petitioner alleged that

Martin Marietta had discriminated against him based on his sex

and his status as a whistleblower.    Petitioner alleged that the

legal bases for the claims asserted in the Nebraska discrimina-

tion complaint were sections 48-11046 and 48-1114(3)7 of the

Nebraska Fair Employment Practice Act (Nebraska FEPA).

     On December 1, 2003, an administrative law judge entered an

order (temporary reinstatement order) with respect to peti-

tioner’s FMSHRC discrimination complaint.   In that order, the

administrative law judge granted petitioner temporary economic

reinstatement to his former position at Martin Marietta, which

was to be effective as of the date of that order.   The temporary

reinstatement order provided that it would remain in effect until

the FMSHRC resolved the claims that the Secretary of Labor




     5
      (...continued)
addresses discrimination in employment based on “race, color,
religion, sex, or national origin”, 42 U.S.C. sec. 2000e-2(a)
(2006).
     6
      Sec. 48-1104 of the Nebraska FEPA prohibits, inter alia, an
employer from discharging, failing to hire, or harassing an
employee or applicant for employment on the basis of “race,
color, religion, sex, disability, marital status, or national
origin”. Neb. Rev. Stat. Ann. sec. 48-1104 (West 2008).
     7
      Sec. 48-1114(3) of the Nebraska FEPA prohibits, inter alia,
an employer from discriminating against an employee for opposing
or refusing to carry out an act that is unlawful under either
Federal or State law. Neb. Rev. Stat. Ann. sec. 48-1114(3) (West
2008).
                               - 7 -

had asserted on petitioner’s behalf in petitioner’s FMSHRC

discrimination complaint.8

     On February 18, 2004, petitioner and Martin Marietta entered

into an agreement entitled “SETTLEMENT AND GENERAL RELEASE

AGREEMENT” (settlement agreement) pursuant to which Martin

Marietta agreed to pay to petitioner a total of $120,000 (settle-

ment amount).   The settlement agreement provided in pertinent

part:

          This Settlement And General Release Agreement
     (“Agreement”) is made on this 18th day of February
     2004, by and between Justin Hansen and Martin Marietta
     Aggregates, Martin Marietta Materials, Inc. and Martin
     Marietta Corporation (collectively referred to herein
     as “Martin Marietta Materials, Inc.”).

          WHEREAS, Justin Hansen has filed complaints pend-
     ing before the Federal Mine Safety and Health Review
     Commission under § 105(c) of the Federal Mine Safety
     and Health Act * * * (collectively referred to as “MSHA
     Complaints”); a complaint with the Nebraska Equal
     Opportunity Commission on September 8, 2003, * * *
     (hereinafter referred to as the “Nebraska Complaint”);
     and a grievance filed on or about August 1, 2003,
     alleging violation of the collective bargaining agree-
     ment between Martin Marietta Materials, Inc. and the
     International Union of Operating Engineers (hereinafter
     referred to as the “Grievance”).[9]



        8
      The temporary economic reinstatement that the administra-
tive law judge granted petitioner required Martin Marietta to pay
wages to petitioner “under the same terms as if his employment
had not terminated on July 29, 2003”. However, Martin Marietta
was not required to reemploy petitioner at the Weeping Water mine
or at any other Martin Marietta job site.
        9
      No grievance that petitioner “filed on or about August 1,
2003” is part of the record in this case. (We shall refer to
that grievance as the union grievance.)
                         - 8 -

     WHEREAS, Martin Marietta Materials, Inc. has
denied and continues to deny all of the allegations and
claims made by Justin Hansen against Martin Marietta
Materials, Inc.

     WHEREAS, Justin Hansen and Martin Marietta Mater-
ials, Inc. now desire to: settle and resolve in full
all disputes between them; to provide for the with-
drawal and dismissal with prejudice of all complaints
made by Justin Hansen against Martin Marietta Materi-
als, Inc., including the MSHA Complaints, the Nebraska
Complaint, and the Grievance; and to effect the release
and discharge of all claims described in the general
release contained herein:

     NOW, THEREFORE, the Parties agree as follows:

     1.   In consideration of the covenants contained
herein, Martin Marietta Materials, Inc. shall pay to
Justin Hansen the total sum of One Hundred Twenty
Thousand Dollars ($120,000.00). This sum is to be
apportioned as follows:

          a.   Twenty Thousand Dollars ($20,000) is
attributable to Justin Hansen’s claims for back wages,
and such sum shall be subject to standard withholdings
for taxes and shall be reported on a W2 Form. This
amount shall be paid directly to Justin Hansen on or
before the Payment Date described in subparagraph 1(c)
below.

          b.   One Hundred Thousand Dollars
($100,000.00) is attributable to Justin Hansen’s claims
of emotional distress and his attorney’s fees, and such
sum shall be reported on a Form 1099 and shall not be
subject to withholding. This amount shall be paid
jointly to Justin Hansen and Michael Kratville on or
before the Payment Date described in subparagraph 1(c)
below.

          c.   They [sic] payments described in this
paragraph 1 shall be made on or before the later of:
(1) the tenth (10) day following the execution of the
Agreement; or (2) the third (3rd) day following issu-
ance of an order by Judge Bulluck dismissing the MSHA
Complaints, including the dissolution of the temporary
reinstatement order, and written confirmation of the
                         - 9 -

withdrawal and dismissal of the Nebraska Complaint and
the Grievance.

     2.   In consideration of the covenants contained
herein, Justin Hansen * * * hereby releases, acquits
and forever discharges Martin Marietta Materials, Inc.,
its masters, servants, principals, agents, officers,
directors, employees, subsidiaries, parent or affili-
ated corporations and successors (collectively “Em-
ployer”), of and from any and all claims or causes of
action arising under the Title VII of the Civil Rights
Act of 1964, the Americans with Disabilities Act, the
Fair Labor Standards Act, the Federal Mine Safety and
Health Act of 1977, the Nebraska Fair Employment Prac-
tice Act, and any other statute, regulation or ordi-
nance of the United States or any state (including
Nebraska) or subdivision thereof, or the common law or
public policy of the United States or any state (in-
cluding Nebraska) or subdivision thereof, and any and
all other claims for liability, damages, losses, ex-
penses, costs, and attorney fees, or pension or retire-
ment or health insurance benefits (except for vested
pension benefits, if any), of whatsoever nature and
whether sounding in tort or contract or otherwise,
which have arisen or might arise from the facts and
circumstances forming the basis of the MSHA Complaints,
the Nebraska Complaint, or the Grievance, or which have
arisen or may arise from Justin Hansen’s employment
with Employer or the termination thereof.

     3.   In consideration of the covenants herein,
Justin Hansen agrees to waive any claim which he might
have for reinstatement with Employer and further agrees
that he will not hereafter apply for employment or
accept employment with Employer.

     4.   Justin Hansen acknowledges and agrees that he
has consulted with his attorney in connection with the
review and execution of this Agreement and that he has
had adequate opportunity to do so.

     5.   In further consideration of the aforesaid,
Justin Hansen agrees to withdraw with prejudice the
MSHA Complaints, the Nebraska Complaint, the Grievance,
and any other related actions or charges against Em-
ployer as being fully compromised, settled and agreed,
and further agrees not to institute or be a party to
any future action against Employer or others in regard
                             - 10 -

     to any of the foregoing. The Parties agree to cause
     Judge Bulluck to dismiss the MSHA Complaints with
     prejudice, to cause the Nebraska Complaint to be dis-
     missed with prejudice, and to cause the Grievance to be
     dismissed with prejudice.

           6.  The Parties acknowledge and agree that the
     actions to be taken by third parties, including Judge
     Bulluck, the Nebraska Equal Opportunity Commission, and
     any party necessary to the dismissal of the Grievance
     (including the International Union of Operating Engi-
     neers and any assigned arbitrator), as described in
     this Agreement, are indispensable prerequisites to
     agreement in this matter and are essential elements of
     this Agreement. The Parties further agree to act in
     good faith to ensure that the third parties identified
     in this Agreement take the actions described in this
     Agreement. The Parties further agree that, should any
     third party fail to take the actions described in this
     Agreement, this Agreement shall be considered null and
     void, and the Parties shall return to the status that
     existed between them prior to the making of this Agree-
     ment.

     Pursuant to paragraph 1.a. of the settlement agreement, on

March 1, 2004, Martin Marietta paid petitioner $12,470, which was

equal to the $20,000 portion of the settlement amount that,

according to that agreement, was attributable to petitioner’s

“claims for back wages” ($20,000 back wages award) less Federal

and State taxes withheld by Martin Marietta.   Pursuant to para-

graph 1.a. of the settlement agreement, Martin Marietta reported

the $20,000 back wages award in Form W-2, Wage and Tax Statement

(Form W-2), that it issued to petitioner for his taxable year

2004.

     Pursuant to paragraph 1.b. of the settlement agreement,

Martin Marietta sent petitioner’s attorney the $100,000 portion
                              - 11 -

of the settlement amount that, according to that agreement, was

attributable to petitioner’s “claims of emotional distress and

his attorney’s fees” ($100,000 emotional distress and legal fees

award).   On March 29, 2004, petitioner’s attorney paid to peti-

tioner a total of $67,230.03, which was equal to the $100,000

emotional distress and legal fees award less $32,769.97 of

attorney’s fees and costs.   Pursuant to paragraph 1.b. of the

settlement agreement, Martin Marietta reported the $100,000

emotional distress and legal fees award in Form 1099-MISC,

Miscellaneous Income (Form 1099-MISC), that it issued to peti-

tioner for his taxable year 2004.

     Petitioner timely filed Form 1040EZ, Income Tax Return for

Single and Joint Filers With No Dependents, for his taxable year

2004 (2004 return).   In that return, petitioner included in gross

income the $20,000 back wages award that Martin Marietta reported

in Form W-2 that it issued to him for his taxable year 2004.

Petitioner did not include in gross income in his 2004 return the

$100,000 emotional distress and legal fees award that Martin

Marietta reported in Form 1099-MISC that it issued to him for

that taxable year.

     Respondent issued to petitioner a notice of deficiency for

his taxable year 2004 (2004 notice).   In that notice, respondent

determined, inter alia, that the $100,000 emotional distress and

legal fees award is includible in petitioner’s gross income.
                              - 12 -

                              OPINION

     Petitioner has the burden of establishing that the determi-

nations in the 2004 notice are wrong.    See Rule 142(a); Welch v.

Helvering, 

, 115 (1933).

     Section 61(a) provides the following sweeping definition of

the term “gross income”:   “Except as otherwise provided in this

subtitle, gross income means all income from whatever source

derived”.   Not only is section 61(a) broad in its scope, Commis-

sioner v. Schleier, 

, 328 (1995), exclusions from

gross income must be narrowly construed, id.

     Section 104(a)(2) provides that gross income does not

include:

           (2) 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 ac-
     count of personal physical    injuries or physical sick-
     ness;

     The regulations under section 104(a)(2) provide in pertinent

part:

     The term “damages received (whether by suit or agree-
     ment)” means 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.

     The Supreme Court of the United States (Supreme Court)

summarized the requirements of section 104(a)(2) as follows:
                               - 13 -

          In sum, the plain language of § 104(a)(2), the
     text of the applicable regulation, and our decision in
     Burke establish two independent requirements that a
     taxpayer must meet before a recovery may be excluded
     under § 104(a)(2). First, the taxpayer must demon-
     strate that the underlying cause of action giving rise
     to the recovery is “based upon tort or tort type
     rights”; and second, the taxpayer must show that the
     damages were received “on account of personal injuries
     or sickness.” * * *

Commissioner v. Schleier, supra at 336-337.

     When the Supreme Court issued its opinion in Commissioner v.

Schleier, supra, section 104(a)(2), as in effect for the year at

issue in Schleier, required, inter alia, that, in order to be

excluded from gross income, an amount of damages had to be

received “on account of personal injuries or sickness”.   After

the Supreme Court issued its opinion in Schleier, Congress

amended (1996 amendment) section 104(a)(2), effective for amounts

received after August 20, 1996, by adding the requirement that,

in order to be excluded from gross income, any amount received

must be on account of personal injuries that are physical or

sickness that is physical.10   Small Business Job Protection Act

of 1996, Pub. L. 104-188, sec. 1605, 110 Stat. 1838.   The 1996



     10
      Sec. 104(a) provides that emotional distress is not to be
treated as a physical injury or physical sickness for purposes of
sec. 104(a)(2), except for damages not in excess of the amount
paid for medical care attributable to emotional distress. In
this connection, the legislative history of the 1996 amendment
states: “It is intended that the term emotional distress in-
cludes symptoms (e.g., insomnia, headaches, stomach disorders)
which may result from such emotional distress.” H. Conf. Rept.
104-737, at 301 n.56 (1996), 1996-3 C.B. 741, 1041 n.56.
                              - 14 -

amendment does not otherwise change the requirements of section

104(a)(2) or the analysis set forth in Commissioner v. Schleier,

supra; it imposes an additional requirement in order for an

amount to qualify for exclusion from gross income under that

section.

      Where damages are received pursuant to a settlement agree-

ment, such as is the case here, the nature of the claim that was

the actual basis for settlement controls whether such damages are

excludable under section 104(a)(2).    United States v. Burke, 

, 237 (1992).   The determination of the nature of the

claim is factual.   Robinson v. Commissioner, 

, 126

(1994), affd. in part, revd. in part, and remanded on another

issue 

 (5th Cir. 1995); Seay v. Commissioner, 

, 37 (1972).   Where there is a settlement agreement, that

determination is usually made by reference to it.    See Knuckles

v. Commissioner, 

, 613 (10th Cir. 1965), affg. T.C.

Memo. 1964-33; Robinson v. Commissioner, supra at 126.    If the

settlement agreement lacks express language stating what the

amount paid pursuant to that agreement was to settle, the intent

of the payor is critical to that determination.     Knuckles v.

Commissioner, supra at 613; see also Agar v. Commissioner, 

, 284 (2d Cir. 1961), affg. per curiam T.C. Memo. 1960-

21.   Although the belief of the payee is relevant to that in-

quiry, the character of the settlement payment hinges ultimately
                              - 15 -

on the dominant reason of the payor in making the payment.     Agar

v. Commissioner, supra at 284; Fono v. Commissioner, 

,

696 (1982), affd. without published opinion 

 (9th Cir.

1984).   Whether the settlement payment is excludable from gross

income under section 104(a)(2) depends on the nature and the

character of the claim asserted, and not upon the validity of

that claim.   See Bent v. Commissioner, 

, 244 (1986),

affd. 

 (3d Cir. 1987); Glynn v. Commissioner, 

, 119 (1981), affd. without published opinion 

(1st Cir. 1982); Seay v. Commissioner, supra at 37.

     It is petitioner’s position that it was the intention of the

parties to the settlement agreement that the $20,000 back wages

award was to be included, but that the $100,000 emotional dis-

tress and legal fees award was not to be included, in peti-

tioner’s gross income.   In support of that position, petitioner

points out that he sustained some bruises as a result of the mine

assault and the home assault by Mr. Fleischman and contends that

the only claims of petitioner remaining to be settled at the time

the parties executed the settlement agreement were his claims

relating to those bruises.

     The settlement agreement rejects petitioner’s position.    The

settlement agreement expressly provided that petitioner and

Martin Marietta entered into that agreement in order to resolve

the claims that petitioner asserted against that company in the
                               - 16 -

MSHA complaints, the Nebraska discrimination complaint, and the

union grievance.11   Although petitioner had sustained some

bruises as a result of the mine assault and the home assault by

Mr. Fleischman, none of the claims that petitioner asserted in

those complaints and that grievance and that are disclosed by the

record in this case was for damages on account of those bruises

or any other alleged personal physical injuries or physical

sickness.

     Paragraph 1 of the settlement agreement provided that, in

consideration of the covenants set forth in that agreement,

Martin Marietta was to pay petitioner a total of $120,000 that

was to be apportioned as follows:   $20,000 was attributable to

petitioner’s “claims for back wages” and $100,000 was attribut-

able to his “claims of emotional distress and his attorney’s

fees”.    Paragraph 1.a. of the settlement agreement providing for

the $20,000 back wages award required Martin Marietta to report

that $20,000 in Form W-2 issued to petitioner, which it did.



     11
      The settlement agreement identified the MSHA complaints,
the Nebraska discrimination complaint, and the union grievance as
the only complaints and grievance that petitioner filed against
Martin Marietta. The settlement agreement also stated that the
parties desired to provide for the dismissal of “all complaints
made by Justin Hansen against Martin Marietta Materials, Inc.,
including the MSHA Complaints, the Nebraska Complaint, and the
Grievance”. (Emphasis added.) We believe that the parties to the
settlement agreement used the word “including” out of an abun-
dance of caution. There is no evidence in the record establish-
ing that petitioner filed any other complaints or grievances
against Martin Marietta. See infra note 13.
                             - 17 -

Paragraph 1.b. of the settlement agreement providing for the

$100,000 emotional distress and legal fees award required Martin

Marietta to report that $100,000 in Form 1099 issued to peti-

tioner, which it did.12

     Paragraph 2 of the settlement agreement provided that, in

consideration of, inter alia, the $120,000 settlement amount that

Martin Marietta agreed in paragraph 1 of that agreement to pay to

petitioner, petitioner was to release Martin Marietta from all

claims that formed the basis of the MSHA complaints, the Nebraska

discrimination complaint, and the union grievance.13



     12
      The Court takes judicial notice of the instructions for
Form 1099-MISC, the type of Form 1099 which Martin Marietta
issued to petitioner for his taxable year 2004 and in which that
company reported as income the $100,000 emotional distress and
legal fees award. Those instructions state, inter alia, that the
following items are to be reported in that form as “Other in-
come”: “Generally, * * * any damages for nonphysical injuries or
sickness, and any other taxable damages.” Those instructions
further state in pertinent part: “Generally, report all compen-
satory damages for nonphysical injuries or sickness, such as
employment discrimination or defamation.”
     13
      Paragraph 2 of the settlement agreement further provided
that petitioner was to release Martin Marietta from any claims
arising under the Americans with Disabilities Act (ADA) and the
Fair Labor Standards Act (FLSA) as well as “any and all other
claims for liability * * * which have arisen or might arise from
the facts and circumstances forming the basis” of the MSHA
complaints, the Nebraska discrimination complaint, or the union
grievance. There is no evidence in the record establishing that
petitioner asserted any claims against Martin Marietta under
either the ADA or the FLSA. See supra note 11. With respect to
the provision releasing Martin Marietta from “any and all other
claims”, that provision appears to be boilerplate language, to
which we do not attribute any significance. See Ndirika v.
Commissioner, T.C. Memo. 2004-250.
                                - 18 -

     Paragraphs 5 and 6 of the settlement agreement (1) required

as “indispensable prerequisites” to the settlement agreement that

petitioner and Martin Marietta cause the MSHA complaints, the

Nebraska discrimination complaint, and the union grievance to be

dismissed with prejudice and (2) provided that that agreement was

to be null and void if those complaints and that grievance were

not dismissed with prejudice.

     On the record before us, we find that the intention of the

parties to the settlement agreement as reflected by the express

terms of that agreement was that the $100,000 emotional distress

and legal fees award that petitioner received from Martin

Marietta was to be included in his gross income.   It is not clear

why the parties to the settlement agreement characterized that

$100,000 amount as attributable to petitioner’s “claims of

emotional distress” and attorney’s fees.   But they did.   What is

clear from the settlement agreement is that petitioner did not

receive any portion of the $100,000 emotional distress and legal

fees award on account of personal physical injuries or physical

sickness.14



     14
      As discussed supra note 10, sec. 104(a) provides that
emotional distress is not to be treated as a physical injury or
physical sickness for purposes of sec. 104(a)(2), except for
damages not in excess of the amount paid for medical care
attributable to emotional distress. Petitioner does not contend
that he sought medical treatment or paid for medical care
attributable to any emotional distress that he claims to have
suffered as a result of Martin Marietta’s actions.
                               - 19 -

     On the record before us, we find that petitioner has failed

to carry his burden of establishing that he received the $100,000

emotional distress and legal fees award from Martin Marietta on

account of personal physical injuries or physical sickness.15    On

that record, we further find that that $100,000 award is not

excludable under section 104(a)(2) from petitioner’s gross income

for his taxable year 2004.16

     We have considered all of the contentions and arguments of

petitioner that are not discussed herein, and we find them to be

without merit, irrelevant, and/or moot.

     To reflect the foregoing and the parties’ concessions,


                                    Decision will be entered

                               for respondent as to the defi-

                               ciency and for petitioner as to

                               the penalty under section 6662(a).




     15
      Assuming arguendo that petitioner had established that he
received a portion of the $100,000 emotional distress and legal
fees award on account of personal physical injuries or physical
sickness, on the record before us, we would find that petitioner
has failed to establish the portion of that award that he
received on account of any such personal physical injuries or
physical sickness.
     16
      We presume that the parties are in agreement regarding the
treatment of the attorney’s fees paid out of the settlement
amount to petitioner’s attorney, which they did not address at
trial and do not address on brief. See Commissioner v. Banks,

 (2005).