Thomas Joseph Ritter v. Commissioner
2017 T.C. Memo. 185
Tax Ct.2017Background
- Thomas J. Ritter lost his principal residence in a foreclosure that was completed while he was in a Chapter 7 bankruptcy (foreclosure judgment entered 2010; bankruptcy discharge July 2, 2010).
- Chase Bank and the OCC entered the Independent Foreclosure Review (IFR) and later amended it (Feb. 28, 2013) to create a Qualified Settlement Fund (QSF) to pay borrowers harmed by certain mortgage-servicing and foreclosure practices.
- The IFR amendment provided standardized payments from the QSF; payments did not require proof of financial harm and expressly did not reflect specific financial injury or lost equity.
- Ritter was placed in a category (did not request IFR review; foreclosure initiated/completed while protected by federal bankruptcy law) with a standard payout of $31,250. The QSF issued and Ritter cashed a $31,250 check on November 8, 2013.
- The QSF issued a Form 1099‑MISC reporting $31,250 as "Other income." Ritter did not report the payment on his 2013 Form 1040. The IRS determined the $31,250 is includible in gross income; respondent conceded the accuracy‑related penalty.
Issues
| Issue | Ritter's Argument | Commissioner’s Argument | Held |
|---|---|---|---|
| Whether the $31,250 QSF payment is includible in gross income for 2013 | Payment is not taxable (Ritter omitted it from income) | Payment is includible in gross income under §61 and the rules for designated settlement funds | Payment is includible in gross income; taxpayer failed to prove any exclusion |
Key Cases Cited
- Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (Sup. Ct.) (accessions to wealth are includible in gross income absent specific exclusion)
- Welch v. Helvering, 290 U.S. 111 (Sup. Ct.) (taxpayer bears burden of proof)
- Raytheon Prod. Corp. v. Commissioner, 144 F.2d 110 (1st Cir.) (test for character of damages: inquire "in lieu of what were the damages awarded?")