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report taxable nonemployee compensation of $7,650, which was
reported by Heartland on Form 1099.
OPINION6
Petitioners do not dispute receiving the $7,650 settlement
payment from Heartland in 1999 to settle Mrs. Prasil’s sex
discrimination claim against Heartland. Petitioners contend,
however, that the $7,650 settlement payment is not taxable
because it “was the amount exempted in our bankruptcy for my
discrimination lawsuit”. In the alternative, petitioners contend
that respondent failed to file a proof of claim in their
bankruptcy proceeding. Petitioners’ contentions are misplaced.
The issue presented in the present case concerns an action
for redetermination of a deficiency for the taxable year 1999,7
which is a postbankruptcy Federal tax liability, and not the
6 Sec. 7491 does not apply in this case to shift the burden
of proof to respondent because petitioners neither alleged that
sec. 7491 was applicable nor established that they fully complied
with the requirements of sec. 7491(a)(2).
7 Sec. 451(a) requires income to be included in the
taxpayer’s gross income in the taxable year of receipt unless the
taxpayer’s accounting method would properly assign the income to
a different taxable period. For cash basis taxpayers, payments
received in settlements of lawsuits are included in income in the
year in which the payments are received unless otherwise
excludable. Sec. 451(a); Oates v. Commissioner, 18 T.C. 570,
584-585 (1952), affd. 207 F.2d 711 (7th Cir. 1953); Amend v.
Commissioner, 13 T.C. 178, 185 (1949); secs. 1.446-1(c)(1)(i),
1.451-1(a), Income Tax Regs. In the present case, petitioners
are cash basis taxpayers who received a settlement payment in
1999. Thus, the issue concerns petitioners’ taxable year 1999.
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