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be entitled as an employee of UC Construction.” In addition, the
Settlement Agreement included mutual releases:
from any and all claims of any and every kind, nature
and character, known or unknown, foreseen or
unforeseen, based on any act or omission occurring
before the date of Lockmiller’s signing this Settlement
Agreement, including any claims arising out of
Lockmiller’s employment with UC Construction.
At no time did petitioner claim to have personal physical
injuries or physical sickness caused by UC Construction.
Petitioner timely filed Form 1040, U.S. Individual Income
Tax Return, for 2000. On line 21 (Other Income) of Form 1040,
petitioner reported “Proceeds from Litigation” in the amount of
$20,000, and on line 23 he claimed a $20,000 deduction for “Costs
of Litigation”.3 Essentially, petitioner excluded the $20,000
payment from income.
In the notice of deficiency, respondent determined that the
$20,000 payment that petitioner received from UC Construction is
includable in income.4
3 The terminology used by petitioner on his return is
misleading. Thus, petitioner and UC Construction settled their
dispute without either party filing a lawsuit. In addition,
petitioner paid $600 to an attorney for representing him in the
negotiations that culminated in the Settlement Agreement;
petitioner did not incur any other “Costs of Litigation”.
4 Petitioner did not itemize deductions on his 2000 return
but rather claimed the standard deduction appropriate to his
filing status. Accordingly, respondent did not allow as a
deduction the cost incurred by petitioner in obtaining the
$20,000 payment. (See supra note 3.) See Benci-Woodward v.
Commissioner, 219 F.3d 941 (9th Cir. 2000), affg. T.C. Memo.
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