Kathleen Simpson v. Cir , 668 F. App'x 241 ( 2016 )

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FILED
FOR THE NINTH CIRCUIT
AUG 10 2016
KATHLEEN S. SIMPSON; GEORGE T. No. 14-72372 MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
SIMPSON,
Tax Ct. No. 26619-11
Petitioners-Appellants,
v. MEMORANDUM*
COMMISSIONER OF INTERNAL
REVENUE,
Respondent-Appellee.
Appeal from a Decision of the
United States Tax Court
David Laro, Tax Court Judge, Presiding
Submitted August 8, 2016**
San Francisco, California
Before: WALLACE and GRABER, Circuit Judges, and LYNN,*** Chief District
Judge.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The panel unanimously concludes that this case is suitable for decision
without oral argument. Fed. R. App. P. 34(a)(2).
***
The Honorable Barbara M. G. Lynn, United States Chief District Judge
for the Northern District of Texas, sitting by designation.
Kathleen Simpson settled an employment suit and received a large payout.
Only a small portion of the settlement was included as income when she and her
husband jointly filed their taxes the following year. The Internal Revenue Service
issued a notice of deficiency, and the case proceeded to trial before the Tax Court.
The Tax Court held that all but 10% of the settlement proceeds had to be included
as income. The Simpsons moved for attorney fees. The Tax Court denied fees.
The Simpsons timely appeal.
We review a decision of the Tax Court the same way we review any decision
rendered by a district court in a civil bench trial. Comm’r v. Dunkin, 500 F.3d
1065, 1068 (9th Cir. 2007). Thus, we review the court’s factual findings for clear
error, its discretionary rulings for abuse of discretion, and its conclusions of law de
novo. Id. We review the Tax Court’s denial of attorney fees for abuse of
discretion. Huffman v. Comm’r, 978 F.2d 1139, 1143 (9th Cir. 1992).
1. The settlement payments to Simpson were not made "under" California’s
Workers’ Compensation Act, I.R.C. § 104(a)(1), and, therefore, could not be
excluded from income. Because Simpson failed to seek approval from the
Workers’ Compensation Appeals Board, the settlement did not follow the
procedures required for the agreement to be valid under the California workers’
compensation scheme. Cal. Lab. Code § 5001; Raischell & Cottrell, Inc. v.
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Workmen’s Comp. Appeals Bd., 58 Cal. Rptr. 159, 163 (Ct. App. 1967).
Additionally, the settlement included only general terms and did not specifically
mention the Workers’ Compensation Act as a reason for the settlement.
2. The Tax Court did not abuse its discretion under Internal Revenue Code
§ 7430(a) in concluding that the Simpsons were not a prevailing party entitled to
attorney fees. The Simpsons did not prevail on their main claim—that the
settlement amounts should be excluded because they were received for workers’
compensation claims. The government was substantially justified in taking a
position that it later conceded, because the Simpsons changed their position during
the litigation.
3. The Tax Court did not abuse its discretion in concluding that a proposed
settlement was not a "qualified" offer because it provided that the Simpsons could
withdraw it at any time. A qualified offer must, by its terms, "remain[] open
during the period beginning on the date it is made and ending on the earliest of the
date the offer is rejected, the date the trial begins, or the 90th day after the date the
offer is made." I.R.C. § 7430(g)(1)(D); Treas. Reg. § 301.7430-7(c)(5). The
burden lies with the Simpsons to show that a proposal is a qualified offer. Tax Ct.
R. 232(e). The proposal is unclear as to whether the offer truly remained open for
the requisite period. Accordingly, the Tax Court did not abuse its discretion in
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concluding that the Simpsons failed to carry their burden to demonstrate that the
proposed agreement was a qualified offer.
AFFIRMED.
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