Syed A. Ahmed v. Commissioner of IRS

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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 12-11337
Non-Argument Calendar
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Agency No. 5080-10
SYED A. AHMED,
RAFIUNNISA R. AHMED,
llllllllllllllllllllllllllllllllllllllllqqqqqq Petitioners-Appellants,
versus
COMMISSIONER OF IRS,
lllllllllllllllllllllllllllllllllllllll lRespondent-Appellee.
________________________
Petition for Review of a Decision of the
U.S.Tax Court
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(November 21, 2012)
Before CARNES, BARKETT and FAY, Circuit Judges.
PER CURIAM:
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Syed Ahmed1, proceeding pro se, appeals the tax court’s denial of his
petition for redetermination of his tax deficiency, imposed for his failure to pay
taxes on a settlement payment that he received related to an employment
discrimination lawsuit. On appeal, he argues that the settlement payment is
excludable from his taxable gross income, under 26 U.S.C. § 104(a)(2), as
compensation for physical injuries or physical sickness. For the reasons set forth
below, we affirm the tax court’s denial of Ahmed’s petition challenging his tax
deficiency.
I.
In 2010, Ahmed filed a petition with the tax court seeking a redetermination
of the Commissioner’s decision that he had a tax deficiency in 2007. He attached
the notice of deficiency, which indicated that he owed $22,185 in taxes on
$90,000 of income for 2007. The Commissioner also imposed a $4,437 penalty
based on Ahmed’s substantial understatement of tax, under 26 U.S.C. § 6662(a).
In his petition, Ahmed asserted that the $90,000 was “not income but [a]
settlement of legal expenses over a period of 16 years in [a] discrimination case.”
The parties’ stipulation of the facts, along with their attached exhibits,
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Although Syed and Rafiunnisa Ahmed are both parties on appeal, the factual background
and issues on appeal relate solely to Syed Ahmed, and accordingly, we refer only to him.
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established that, on October 23, 2006, Ahmed had filed a civil complaint against
Fulton County, his former employer, alleging numerous claims, including
constitutional violations, discrimination, and retaliation, based on his race,
religion, and national origin, in violation of Title VII of the Civil Rights Act of
1964 and 42 U.S.C. § 1981, and age discrimination, in violation of the Age
Discrimination and Employment Act (“ADEA”). Among other things, he alleged
that the harassment that he suffered during his employment contributed to a heart
attack that he suffered on August 24, 2005. As to relief, Ahmed requested back
pay, back benefits, compensatory and punitive damages for intentional
discrimination, litigation expenses, and reasonable attorney’s fees.
On October 10, 2007, Ahmed entered into a settlement agreement with
Fulton County, pursuant to which he agreed to dismiss his employment lawsuit in
exchange for $150,000. Ahmed also agreed to retire from his employment with
the County. The agreement indicated that it encompassed all claims arising from
Ahmed’s civil action, including:
any and all real or perceived claims, obligations, promises, demands,
rights, damages, costs[,] losses, suits, actions, attorneys’ fees and
expenses of any nature whatsoever which AHMED may have or have
had, or may later claim to have had, against any of the FULTON
COUNTY RELEASEES for personal injuries, contractual damages,
losses and damage to personal property, or any other losses or
expenses of any kind.
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Ahmed’s attorney in the case collected a 40% fee from the total settlement
payment, which was $60,000, and the remaining $90,000 was deposited to
Ahmed’s bank account.
At the trial, Ahmed testified that he “settled the case because of physical
injuries.” Further, he testified that Fulton County had already given him back pay
for the time period of August 4 to January 20, 2005, and Ahmed paid taxes on
those earnings in his 2005 tax return. Further, he stated, “then what we got was
$90,000 for my heart attack and the sufferings of my whole family and myself.”
Ahmed did not include the settlement as taxable income in his 2007 tax return
because the Internal Revenue Service has instructed taxpayers to exclude
“compensatory damages for personal physical injury or physical sickness.”
The court issued an opinion denying Ahmed’s petition. The court found
that, although the settlement agreement referenced “personal injuries” in a
“boilerplate list” of all the claims from which Ahmed agreed to release Fulton
County, the settlement did not allocate any portion of the payment to compensate
him for physical injuries. Further, as part of the settlement agreement, Ahmed
agreed to retire from his employment, which suggests that at least part of the
settlement payment should be considered as severance pay. Although the
complaint mentioned Ahmed’s physical injuries, the complaint did not specifically
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seek relief for those injuries. Moreover, the complaint never connected Ahmed’s
heart attack or other physical injuries to his claims for damages. Thus, the tax
court concluded that Ahmed failed to prove that Fulton County intended to
compensate him for physical injuries, given that the complaint “placed little
emphasis” on his physical injuries, the settlement agreement’s only mention of
“personal injuries” was in the boilerplate language, and the record contained no
other evidence showing that any part of the settlement was for physical injuries.
Accordingly, the tax court sustained the Commissioner’s determination that the
$90,000 that Ahmed received under the settlement agreement is taxable. The tax
court also sustained a tax penalty that Ahmed incurred for a substantial
understatement of income tax, as he failed to raise the issue at trial.
II.
As a preliminary matter, the Commissioner, in its response brief, argues that
the tax court properly sustained Ahmed’s tax penalty for a substantial
understatement of taxable income, and regardless, he waived any challenge to his
tax penalty because he failed to challenge the penalty in his petition before the tax
court. However, even if he had preserved such a challenge, Ahmed has abandoned
it on appeal because, although he makes two passing references to the penalty, he
provides no arguments related to the penalty issue in his appeal brief. See Timson
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v. Sampson, 518 F.3d 870, 874 (11th Cir. 2008) (holding that issues not briefed on
appeal by a pro se litigant are deemed abandoned). In his statement of the issues,
Ahmed states, “[I]n Tax Return of 2007[, he] clearly mentioned about the
settlement, NO pena[]lty be levied.” Additionally, in his statement of facts, he
indicates that, because the settlement was prominently noted on his tax returns,
“the question of pena[]lty does not arise.” These statements do not clearly
articulate a challenge to the tax court’s determination that Ahmed had waived the
tax penalty issue by failing to raise it at trial. Accordingly, he has abandoned a
challenge to the penalty on appeal. See Timson, 518 F.3d at 874.
III.
We review the tax court’s factual findings for clear error and its legal
conclusions de novo. Estate of Whitt v. Comm’r of Internal Revenue, 751 F.2d
1548, 1556 (11th Cir. 1985). The Commissioner’s determination of a deficiency is
presumed correct and the taxpayer has the burden of proving by a preponderance
of the evidence that it is incorrect. Id. We read briefs filed by pro se litigants
liberally. Timson, 518 F.3d at 874.
The Sixteenth Amendment to the U.S. Constitution provides that “Congress
shall have power to lay and collect taxes on incomes, from whatever source
derived.” U.S. CONST. amend. XVI. The Internal Revenue Code (“IRC”) imposes
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a tax on the taxable income of every individual who is a citizen or resident of the
United States, with some exceptions not applicable here. 26 U.S.C. § 1(a)-(d); 26
C.F.R. § 1.1-1(a). Taxable income is gross income less deductions. 26 U.S.C.
§ 63(a). Section 61(a) of the IRC defines gross income broadly, stating that
“[e]xcept as otherwise provided in this subtitle, gross income means all income
from whatever source derived.” Comm’r of Internal Revenue v. Schleier, 515 U.S.
323, 327, 115 S.Ct. 2159, 2163, 132 L.Ed. 294(1995); 26 U.S.C. § 61(a). The
Supreme Court has “repeatedly emphasized the ‘sweeping scope’ of this section,”
and that “exclusions from income must be narrowly construed.” Id. at 327-28, 115
S.Ct. at 2163.
Section 104(a)(2) of the IRC expressly provides that “gross income” does
not include:
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 account of personal physical injuries or
physical sickness.
26 U.S.C. § 104(a)(2). In Schleier, the Supreme Court rejected a taxpayer’s claim
that back pay that he received under an ADEA settlement was exlcudable from
gross income under § 104(a)(2), concluding that his recovery of the back pay was
not “on account of” any personal injury and no personal injury affected the amount
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of back pay recovered. Schleier, 515 U.S. at 327-31, 115 S.Ct. at 2163-64.
Here, the tax court did not clearly err in concluding that Ahmed’s $90,000
settlement payment was not excludable from his taxable income under § 104(a)(2).
As noted by the tax court, the Commissioner’s determination of Ahmed’s tax
deficiency is presumed correct, and Ahmed had the burden to show that the
payment was received in compensation for physical injury or sickness. See Estate
of Whitt, 751 at 1556. A review of the record confirms that Ahmed failed to meet
this burden. Under the settlement agreement, no portion of the $150,000 payment
was specifically designated as compensation for a physical injury or sickness.
Instead, the agreement was intended to release Fulton County from a broad array
of potential future claims that might arise out of Ahmed’s employment
discrimination lawsuit. While the agreement referenced “personal injuries” in a
list of several types of these potential claims, the agreement did not reference any
specific physical injury or sickness or medical costs. The agreement specified
only that the settlement payment was in exchange for Ahmed’s agreement to
dismiss his employment discrimination lawsuit and to retire from employment.
Notably, although Ahmed’s complaint in his discrimination lawsuit asserted that
his heart attack was induced by Fulton County, he did not specifically seek
damages for any physical injuries or medical expenses.
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Additionally, while the County, in 2005, proposed to pay Ahmed six weeks
of back pay for the time “surrounding his heart attack,” this proposal was made
before Ahmed initiated the 2006 discrimination lawsuit that resulted in the 2007
settlement payment. Moreover, Ahmed suffered his heart attack on August 24,
2005, and he testified that, in 2005, he had received back pay for the time between
August and January. Thus, Fulton County already compensated Ahmed in 2005
for the wages that he lost “on account of” his heart attack, and it does not appear
that his heart attack would have affected the amount of any back pay that he
received under the 2007 settlement agreement. See Schleier, 515 U.S. at 327-29,
115 S.Ct. at 2163-64.
On appeal, Ahmed argues that the tax court erred in finding that the
settlement was intended as severance because he enjoyed full retirement benefits.
However, as noted by the tax court, the settlement agreement specified that the
$150,000 payment was contingent on Ahmed’s agreement to retire. Ahmed
provides no explanation for his suggestion that the payment cannot be considered
as severance because he received retirement benefits. Ahmed further argues that,
even if the $90,000 settlement payment was taxable, the taxable amount should be
reduced by the $50,000 of legal expenses that he incurred over a 12-year period.
However, the parties stipulated that, out of the $150,000 total settlement payment,
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the Commissioner excluded the $60,000 that Ahmed’s attorney received, and
imposed a tax deficiency only on the remaining $90,000 that Ahmed received.
Ahmed fails to explain how any other legal fees that he incurred related to the
2007 settlement. Finally, Ahmed asserts that the tax court ignored much of the
factual record and relied on incorrect facts. However, he failed to provide any
specific examples of evidence that the tax court ignored or any facts that it
improperly presumed to be correct. In sum, he failed to meet his burden to show
by a preponderance of the evidence that the settlement payment was intended to
compensate him for physical injury or sickness. See Estate of Whitt, 751 at 1556.
For the foregoing reasons, we affirm the tax court’s denial of Ahmed’s
petition challenging his tax deficiency.
AFFIRMED.
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