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Petitioner denied that she was unfit to teach. A pleading
petitioner filed with the State court asserts: (1) Petitioner
“is not suffering from a mental illness which prevents her from
performing her duties as a special education teacher”; and (2)
“even if she does suffer from a mental illness * * * she is more
than competent to perform her duties”.
In September 2000, the State court case was resolved
pursuant to a written settlement agreement. Petitioner resigned
her position and executed a release of claims against SCOE. In
exchange, SCOE paid petitioner $50,000.
On her 2000 Federal income tax return, petitioner did not
report the $50,000 as gross income. Petitioner had suffered from
various physical ailments during her employment with SCOE,
including diabetes, inner ear pain, and impetigo. Petitioner
believed that the $50,000 was, in whole or in part, compensation
for these injuries and therefore nontaxable. Respondent
determined that the $50,000 was includable in petitioner’s gross
income and issued a notice of deficiency to petitioner on
September 2, 2004.
Discussion
In general, the Commissioner’s determinations set forth in a
notice of deficiency are presumed correct, and the taxpayer bears
the burden of showing that the determinations are in error. Rule
142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Pursuant
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