USCA1 Opinion

[NOT FOR PUBLICATION]

[NOT FOR PUBLICATION]

United States Court of Appeals

United States Court of Appeals
For the First Circuit
For the First Circuit
____________________

No. 95-2180

LAUREL A. FOREST,

Petitioner,

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent.

____________________

ON APPEAL FROM THE DECISION OF

THE UNITED STATES TAX COURT

____________________

Before

Torruella, Chief Judge,

___________

Campbell, Senior Circuit Judge,

____________________

and Lynch, Circuit Judge.

_____________

_____________________

Joseph A. Kelly, with whom Carroll, Kelly & Murphy,

_______________
_______________________

Charles
_______

J. Reilly, Reilly Law Associates, Inc. and Robert E. Hardman were

_________ ___________________________
_________________
on brief for petitioner.
Kenneth W. Rosenberg,
______________________
Assistant

with

whom

Attorney General, Gary R. Allen,

_____________

Loretta C.
Argrett,
_____________________

Bruce R. Ellisen and

________________

Kevin M. Brown, Attorneys, Tax Division,

_______________

Department of Justice,

were on brief for respondent.

____________________

December 18, 1996

____________________

TORRUELLA, Chief Judge.

Petitioner-Appellant Laurel A.

TORRUELLA, Chief Judge.

___________

Forest ("Taxpayer")

appeals the

income tax deficiency

found by

the Commissioner of the Internal Revenue Service ("Commissioner")

and

affirmed by the Tax Court.

Memo. 1995-377.

In the

spotlight is Section

Internal Revenue Code ("Code"),

received . . . on

excluded

from

Commissioner's

Taxpayer

should be

See Forest v. Commissioner, T.C.

___ ______
____________

income.1

determination that

received in

settlement

injuries or sickness"

The

Tax

a portion

of her

Court

of the

Taxpayer now seeks review of

the reasons stated below,

we affirm.

We

upheld

be

the

$2,000,000

personal injury

characterized as prejudgment interest

gross income.

the

which provides that "any damages

account of personal

gross

104(a)(2) of

claim

and included in

that decision.

do not reach,

For

because

they

have

interest

been

in a

waived, issues

settlement of

concerning

a tort action

whether prejudgment

is excludable

as a

matter of federal law.

BACKGROUND
BACKGROUND

The pertinent facts, some of which have been stipulated

and incorporated

in the Tax Court's findings,

and others, which

we draw from the record, are not in dispute.

On March 9, 1982, Taxpayer fractured her back

slipped

and fell

inside

her

employer's walk-in

During 1985, she brought a products liability

manufacturer

of the

refrigerator,

when she

refrigerator.

action against the

Bohn Refrigeration

Products

____________________

Unless otherwise indicated, all section references are to the

Internal Revenue Code in effect for 1992.

26 U.S.C.

1 et seq. (1988 & Supp. 1991).

_______

Internal Revenue Code,

-2-

("Bohn"), in the

Superior Court of Rhode Island.

Bohn Refrigeration Prods.,

___________________________

Superior Court,

returned

Civil

Providence, Sc.).

a verdict on September

Action

No.

See Forest v.
___ ______

85-0666

Following a trial,

18, 1991, in

(R.I.

the jury

favor of Taxpayer

for $2,600,000, less ten percent for contributory negligence, for

total award

of $2,340,000.

In

addition, pursuant

to Rhode

Island General Laws section 9-21-10 (1985), statutory prejudgment

interest of

twelve percent

was added

to the

jury award.

total judgment, including interest, was $5,007,600.

The

The interest

constituted 53% of the total judgment.

On

trial.

September 27, 1991, Bohn

On October

Superior

Court

conscience"

and

15, following a

found

that

ordered a

the

filed a motion

hearing on the

jury's

new trial

on

award

for a new

motion, the

"shocked

the issue

the

of damages

unless Taxpayer agreed to a remittitur of $1,000,000 on or before

November 15, 1991.

filed

Two

days later, Taxpayer

consented to

and

the $1,000,000 remittitur and the Superior Court entered a

judgment for

Taxpayer against Bohn

in the amount

of $1,440,000

(i.e., $1,600,000 less ten percent contributory negligence), plus

interest

and costs.

percent was

added to

Statutory

prejudgment interest

the judgment, this

of twelve

time in the

amount of

$1,641,600, resulting in

a total judgment of $3,081,600.

the interest constituted

53% of

October

30,

1991,

Bohn, not

the total judgment.

satisfied

with

the

Then,

on

new result,

appealed the judgment to the Rhode Island Supreme Court.

-3-

Again,

During

the pendency

of the

appeal, Bohn

case with Taxpayer on December 19, 1991.

Release

("Release")

injuries, Bohn agreed

did

not provide for

between

the

allocated

proceeds

Taxpayer

In return for a General

of all

to pay Taxpayer

any allocation

claims

for

$2,000,000.

of the

personal

The

Release

settlement proceeds

damages and interest (or costs for that matter).

settlement

whether

by

settled the

any

negotiations,

portion

to interest

represented

of

the

the

settlement

nor stated

interest

parties

neither

proceeds

that none

--

was

discussed

should

of the

interest

During

be

settlement

simply

not

discussed, neither during the negotiations nor in the Release.

On December 19, 1991, and in accordance with

of

the General

Release, Aetna

Casualty issued

the terms

a check

in the

amount

of $2,000,000 to Taxpayer and her attorneys.

On December

23, 1991, Bohn withdrew its appeal and the parties entered into a

Satisfaction

for

Stipulation ("Stipulation")

the purpose of removing

docket.

in the

the case from

Superior Court

the Superior Court's

The Stipulation stated:

The

judgment

October

17,

entered by
1991[,]

this

in the

$1,440,000, plus interest and

Court on
amount

of

costs, has

been fully satisfied.

The

parties

did

Stipulation.

not

The

consider

Clerk of

the

the

tax

consequences

Superior

Court

of

the

did not

add

interest to the settlement of $2,000,000.

During

Taxpayer in

1992, Taxpayer's

attorneys issued

the amount of $1,256,511.36,

check to

representing her share

of the settlement proceeds after deducting $668,489 in legal fees

-4-

and

costs.

Taxpayer

$2,000,000 settlement on

neither

reported

any

portion

her 1992 federal income

of

the

tax return nor

claimed any deductions for legal fees and costs stemming from the

lawsuit.

There was

received

Casualty.

uncontroverted testimony that Taxpayer never

Form 1099

documenting

interest

income from

Aetna

In

its February

Commissioner determined

for

the

taxable year

Commissioner

determined

3,

1994, notice

of deficiency,

a deficiency in Taxpayer's

1992

in the

that

of

deficiency

Taxpayer's

failure to

additional

interest income from the settlement

$560,000.

This

settlement

Section

in her

figure represented

proceeds

($1,440,000).

included

the

amount

($2,000,000)

1992

gross income

$137,459.

was

The

based

upon

gross income

the

the

in the amount of

the difference

and

the

between the

damage

award

The Commissioner also determined that, pursuant to

212(1) and subject to

the 2% floor

provided by Section

67, Taxpayer was entitled to miscellaneous itemized deductions in

the amount

of $175,513 for

attorneys' fees attributable

to the

interest portion of the settlement proceeds.

Taxpayer petitioned the Tax Court for a redetermination

of the deficiency, arguing that an amount received

in settlement

of a personal injury claim represented damages under Rhode Island

law

and

that

the

entire

lump

sum

excludable from

income under Section

sustained

Commissioner's

the

received

was

therefore

104(a)(2).

The

Tax Court

holding

that

determination,

-5-

portion

of

the

settlement

proceeds

represented

prejudgment

interest and was not excludable from income:

[I]n

the

instant

allocations
[R]elease

were
as to

case,

made in

no

express

the [G]eneral

interest.

Indeed, the

[G]eneral [R]elease does not even mention

interest.

Because there were

allocations,

we

evidence in the

must

no express

look

to

other

record to decide whether

any of the settlement proceeds

are to be

allocated to interest.

After setting forth the chronology of events culminating with the

Stipulation, the Tax

Court concluded that "[b]ased

and circumstances of

the instant case,

we hold that

on the facts

[Taxpayer]

has failed to establish that none of the settlement proceeds were

paid on account of prejudgment statutory interest."

The Tax Court

then proceeded to decide what portion of

the $2,000,000 constitutes interest.

"[b]ased on our calculations,

of a $2,000,000

annum

over

we find that the interest

judgment accruing interest at a rate

9.5

years

is

Nevertheless, in

light

of the

Taxpayer is

forth

not liable for

in the notice of

Commissioner's

The court determined that,

$1,065,420.56"

(footnote

Commissioner's

a deficiency

determination in

the notice

of 12% per

omitted).

concession

in excess of

deficiency, the Tax

portion

that

that set

Court sustained the

of

deficiency that

$560,000 of the settlement represents interest.

This appeal

26 U.S.C.

ensued.

We have

jurisdiction pursuant to

7482(a)(1).

STANDARD OF REVIEW
STANDARD OF REVIEW

-6-

We review the Tax Court's decision "in the same

and to the

civil

same extent

actions tried

Whether

law and,

as decisions of

without

a jury."

prejudgment interest is taxable

the district courts

26 U.S.C.

in

7482(a).

is purely a question of

therefore, subject to de novo review.

________

United States, 73 F.3d

_____________

manner

See
___

1040, 1042 (10th Cir. 1996)

Brabson v.
_______

(Coffin, J.,

sitting by

designation), petition for cert. filed,

_________________________

3709 (Apr. 10, 1996);

Cir.

Alexander v.
_________

1995) (collecting

cases);

IRS, 72 F.3d
___

see also
________

64 U.S.L.W.

938, 941

(1st

First Nat'l Bank in

_____________________

Albuquerque v. Commissioner, 921 F.2d 1081, 1086 (10th Cir. 1990)

___________
____________

(stating that de novo

_______

of

law

and

principles to

fact

of

ultimate

fact

derived

subsidiary facts).

-- including its

various elements

error.

review is applied to tax

The

allocation of the

of recovery

-- is

from

court's findings

applying

legal

Tax Court's findings

of

settlement proceeds to

reviewable

only for

clear

Alexander, 72 F.3d at 941.

_________

DISCUSSION
DISCUSSION

Neither

party

disputes

that

the

claim

underlying

Taxpayer's recovery was in the nature of a tort, or that Taxpayer

suffered injuries.

What the parties vigorously dispute, and what

we must determine,

is whether a portion of the lump sum received

in

settlement of

Taxpayer's personal

prejudgment interest

"damages received . .

and,

if so,

injury claim

whether it

. on account of personal

the meaning of Section 104(a)(2).

I
I

-7-

constitutes

is excludable

as

injuries" within

As always, we begin

of which there are

as otherwise

income

two.

with the relevant Code provisions,

Section 61(a) provides

provided in this

1.104-1(c).

and

predecessors

its

As

v. Schleier,
________

has

been repeatedly

___ U.S. ___, 115

gain constitutes

it falls

gross income

within a

26 U.S.C.

the "'sweeping scope'

Supreme Court[,]" Brabson, 73

_______

that

subtitle, gross income

from whatever source derived."

C.F.R.

that, "[e]xcept

means all

61(a); see 26
___

of this section

emphasized

by

the

F.3d at 1042 (quoting Commissioner

____________

S. Ct. 2159, 2163

unless the

specific

(1995)), "any

taxpayer demonstrates

exemption."

Id.
___

In

turn,

Section

104(a)(2) -- the exclusion at issue here -- provides, in

relevant

part, that gross income does not include "the amount of

any damages received (whether by suit or agreement and whether as

lump

sums

injuries

or

as

periodic

or sickness."

26

payments)

U.S.C.

on account

104(a)(2).

of

As

personal

the Tenth

Circuit recently noted in Brabson, "[i]n interpreting the breadth

_______

of

104(a)(2), we are guided by the corollary to

61(a)'s broad

construction, the 'default rule of statutory

interpretation that

exclusions

construed.'"

from

income

must

be

narrowly

Id.
___

(quoting Schleier, ___ U.S. at ___, 115 S. Ct. at 2163); see also
________
________

Delaney v. Commissioner, 99 F.3d 20 (1st Cir. 1996).

_______
____________

II
II

Taxpayer makes two main

contentions on appeal.

First,

she claims that the settlement amount did not contain prejudgment

interest,

but

consisted

Section 104(a)(2).

Second,

solely

of

damages, excludable

under

she argues that prejudgment interest

-8-

is considered

to prejudgment

"damages" and, therefore, any

interest is

excludable under

amount attributable

Section 104(a)(2).

We address Taxpayer's arguments in turn.

-9-

A.
A.

Allocation of Settlement Amount

Allocation of Settlement Amount

"It is

settled law that

taxpayers bear the

burden of

proving that a tax deficiency assessment is erroneous."

99

F.3d at 23.

The Commissioner's

"ruling has the support of a

presumption of correctness, and the [Taxpayer] has

proving it to

(1933).

subject

be wrong."

"Ultimately, of

to

reversal

Welch v. Helvering,
_____
_________

the

taxpayer

the burden of

290 U.S. 111, 115

course, a tax deficiency

if

Delaney,
_______

assessment is

establishes

by

preponderance of the

evidence that it was

erroneous."

Delaney,
_______

99 F.3d at 23.

Taxpayer

argues that the

General Release's silence as

to

interest is key to the proper determination of the allocation

of

the settlement.

While this

appeal, see id. ("Since

___ ___

suggests

no

argument

may have

certain

the settlement agreement language itself

differentiation

between

damages

and

prejudgment

interest, its silence plainly permits the interpretation that the

entire $250,000 constituted recompense for personal injury."), it

ignores

the

guiding

principle

that

"the

required

inquiry

encompasses much more than the mere language subscribed to by the

parties,

whether

stipulation

of

in

the

dismissal,

settlement

or both,

agreement

because

proper,

the

under established

precedent

damages

the Tax

awarded'

determination, "the

whether a

Court must

or

paid."

intent of

determine 'in

Id.
___

at 23-24.

the payor

is

settlement recovery is excludable

lieu of

what were

In

making this

a key

determinant

from gross income."

Id. at 24.
___

-10-

Where, as here, that intent is not readily discernable,

the Tax

Court looks to

all facts and

circumstances surrounding

the settlement, including "the details surrounding the litigation

in the

payee's

underlying proceeding,

complaint

proceeding, and

by each party

and

amended

the allegations contained

complaint

the arguments made in

there."

in

the

underlying

the underlying proceeding

Robinson v. Commissioner,
________
____________

(1994), rev'd in part on other grounds, 70

_________________________________

1995), cert. denied, 117 S. Ct. 83

_____________

in the

(1996).

102 T.C.

F.3d 34

116

(5th Cir.

Furthermore,

as we

recently pointed out, and as Taxpayer recognizes, "a jury verdict

provides 'the

best indication

original tort claims."

70 F.3d at 38).

of the

worth' of

the taxpayers'

Delaney, 99 F.3d at 25 (quoting Robinson,

_______
________

Here, the

silence

any,

as to allocation of the settlement and having little, if

evidence before

beyond

Tax Court, recognizing the General Release's

the

language of

circumstances

considered

it indicating

surrounding

evidence

consequences of

the

judgment2

Release

Taxpayer's

The

attorneys

facts and

Tax

that

Court

the

tax

contemplated during the

The Tax Court also recognized, however,

was

provided

intent, looked

to the

settlement.

the settlement were not

settlement

that

that

from

settlement negotiations.

that

the General

the payor's

negotiated

under

prejudgment

the

interest,

shadow

in

the

of

same

____________________

Taxpayer argues that the jury award was not a final verdict or

decision
that

of the court under Rhode Island law.

any debt was rendered unenforceable

the appeal and therefore

component

Taxpayer contends

during the pendency of

there can be no finding

based on the jury

award.

Even

of an interest

if Taxpayer correctly

-11-

percentage

of

remittitur.3

the

total

award

both

before

and

after

the

Regardless of which judgment is considered, the Tax

Court was not clearly

erroneous in considering this circumstance

as part of the context in which the settlement was reached.

Additionally, the Stipulation, which stated that "[t]he

judgment .

. . in

the amount of

$1,440,000, plus

costs, has

been fully satisfied," indicates

interest and

that the settlement

reached reflected satisfaction

of the jury award, as

that award

had been apportioned by the Superior Court.

Moreover, while the

support

included

the

Tax

Court's

prejudgment

circumstances

available facts and

finding that

interest,

supports the

the

nothing

in

circumstances

settlement

those

opposite conclusion.

amount

facts

At

and

best, the

____________________

recites the law of Rhode Island, which we need not decide, we are
not

looking

to

the judgment

as

the

existence of an interest component in

sole

indication of

this settlement.

the

Instead,

we regard the Superior Court's judgment as part of the context in

which the parties negotiated the settlement.

Taxpayer

jury

award.

contends that Bohn's appeal

reinstated the original

In support of this contention, Taxpayer cites Dawes

_____

v. McKenna, 215
_______

A.2d 235 (R.I. 1965).

Dawes,
_____

however, does not

hold that the original award is automatically reinstated; rather,

it

allows only

that the original

appeal.

Id. at 325-26.
___

the

Court

Tax

to

Thus,

look

award is

open for

review on

it was not clearly erroneous for

to the

award

after

remittitur

as a

circumstance for consideration.

Furthermore, as

the Tax Court

appropriately recognized, even

if

the original award were considered, there is no precedent for

the

argument that a jury award larger than the settlement amount

necessitates a finding that the entire settlement is attributable

to compensation
116,

the

Tax

for personal
Court found

proceeds

was

proceeds

represented less

injuries.
that

attributable to

portion

interest

than twenty

damage award.

-12-

In Robinson,
________

even

of the

102 T.C.

settlement

though the

percent of

total

the original

General

Release's

settlement

and

silence

regarding

proceeds is ambiguous.

circumstances

conclusion,

weighing

in

the

allocation

In light of

favor

that ambiguity is certainly

of

of

the

the other facts

the

Tax

Court's

not enough to warrant a

finding that the Tax Court's findings are clearly erroneous.

v.

Taxpayer contends that this

case is similar to McShane

_______

Commissioner, T.C. Memo 1987-151.

____________

Although the facts in both

cases

involve

thereafter the

jury

two cases

agreement provided for

recent case similar

McShane

award,

decision and

an

diverge.

appeal,

and

In McShane,
_______

settlement,

the settlement

lump sum payments to the taxpayers.

to the one at

found that

bar, this court reviewed

the Tax

In a

the

Court's determination

_______

that

the

settlement did

not include

interest

was based

on a

unique set of facts:

"First,

the

interest'

term

had

'without

been

included

costs

and

in

the

settlement agreement at the insistence of

counsel

for

the principal

the tort action.

of

all

action,

Second,

defendant in
the intentions

parties to

the

as

by their

stated

underlying tort
attorneys,

were most consistent with an intention to

pay no

interest.

Third,

credited the testimony

the

tort

action

amounts

for

arrived

at

that

each
by

the Tax

of all counsel in
the

plaintiff

assessing the

appeal and that the tax

Court

settlement
had

been

risks

on

consequences had

never been discussed."

Delaney, 99 F.3d at 25.

_______

The Tax

Court in

thorough inquiry into the

the instant

case

made a

similarly

relevant facts and circumstances.

It

found that the settlement agreement was negotiated in the context

-13-

of the jury award in the underlying case.

from the

Taxpayer's attorneys that neither

interest

were considered in reaching the

It also heard evidence

tax consequences nor

settlement amount.

heard no evidence as to the intent of the payor, Bohn.

It

The court

found that, unlike the agreement in McShane, there was no express

_______

statement in the Release

indicating that the payment was

not to

include prejudgment interest.

Finally, the Stipulation contained

language indicating

settlement satisfied

after remittitur,

that the

including interest

and costs.

the judgment

We

find that

these facts are sufficient to distinguish this case from McShane.

_______

Thus, the Tax Court's

the

facts

and

circumstances

conclusion is amply supported by

surrounding

the

settlement

and

Taxpayer's arguments

are insufficient to overcome

her burden of

showing error in the

Commissioner's determination or clear error

in the Tax Court's findings.

B.
B.

Whether
Whether

prejudgment
prejudgment

interest
interest

is
is

"damages" under Rhode Island law.

"damages" under Rhode Island law.

1.

Kovacs v. Commissioner

excludable
excludable

as
as

1.

Kovacs v. Commissioner
______
____________

Taxpayer argues that the

prior case law do not

v.

Commissioner,
____________

Code, legislative history and

support the Tax Court's holding in

100

T.C.

124

(1993),

aff'd,
_____

Kovacs
______

25 F.3d 1048

(6th Cir.), cert. denied, 115 S. Ct. 424 (1994), that prejudgment
____________

interest on a personal injury claim is not excludable from income

under Section 104(a)(2).

Kovacs improperly
______

interest is

maintains

Her contention is that the Tax Court in

relied on precedent holding that post-judgment

____

not excludable from

that nothing

in

interest income.

the legislative

-14-

She

further

history of

Section

104(a)(2) supports a distinction between compensatory damages and

interest awarded on a claim of physical injury.

Finally, relying

on the Periodic Payment Settlement Act of 1982,4

Taxpayer argues

that Congress, in amending the Code to allow for the exclusion of

period

settlement payments

representing the

-- which would

time value of money, or interest -- disregarded

any difference between lump

sum and periodic payments

for any interest income upon settlement

find

nothing

in

include a component

the

record

below,

and meant

to be excludable.

including

the

As we

testimony

presented and the

initial and

indicate that these

we

reply briefs of

arguments were raised before

decline Taxpayer's invitation to consider

time on appeal.

taxpayer's

the parties,

See
___

Delaney, 99 F.3d
_______

failure to raise

a similar

to

the Tax Court,

them for the first

at 26 (determining

argument before

that

the Tax

Court amounted to waiver of that argument).

2.
2.

Treatment of Interest Under Rhode Island Law

Treatment of Interest Under Rhode Island Law

Taxpayer contends

determined by

that whether an award

reference to the

She points out

nature of the

underlying claim.

that the underlying claim here is

personal injury

and, as such,

is taxable is

one to redress

the damages received

thereon are

____________________

We note, in passing,

rely on this

that, to the extent Taxpayer's arguments

amendment, such

reliance is misplaced.

That

Act

allows

the

excludability

of

the

payments in settlement of a claim.

portion of "interest"
Act, however,
not

statutory language

33,

the

amount

Taxpayer, as her

provisions

of

of that

income.

any inconsistency between

This

settlement does

Act.

We apply

relevant to Taxpayer's particular

Court did in Kovacs v.

______

periodic

In so doing, the Act allows a

excluded from gross

does not assist

fall within

the Tax

to be

entire

claim.

the

As

Commissioner, 100 T.C. 124, 132____________

the two methods

of settlement we

leave to Congress to remedy.

-15-

excludable.

Noting that the

determined under

the relevant

nature of the

underlying claim is

state law, Taxpayer

argues that,

under

Rhode

Island

considered part of

law,

statutorily

imposed

interest

is

damages meant to compensate the injured party

and thus is excludable.

We

recently

characterization

"thoughtful"

of

visited

interest.

the

In

approach utilized

question

Delaney, we
_______

in Brabson,
_______

of

looked

73 F.3d

Cir. 1996) (Coffin, J., sitting by designation):

"The

Tenth

though

Circuit

state law

. .

governs the

legal interests and rights

state law, the 'federal
pertaining to such
are solely a matter
.

Accordingly,

noted

that

nature of

created under

tax consequences

interests and

rights

of federal law.' . .

the Brabson
_______

panel first

ascertained the pertinent characteristics

of

statutory prejudgment

state

interest under

[the relevant state] law, but then looked

law

to the

1040 (10th

to

federal

law

to

determine

its

excludability."

Delaney, 99 F.3d at 26.

_______

Accordingly,

we

look first

Rhode

Island law

the legal

relies on

Factory Mutual Insurance Company of America v. Cooper,

___________________________________________
______

A.2d 370 (R.I. 1970),

part

Mutual
______

of damages.

court

component

did

prejudgment interest.

to

determine

262

nature of

to

for the proposition

that interest is

Taxpayer's reliance is misplaced.

not

hold

that

prejudgment

of damages under Rhode Island law.

Taxpayer

The Factory
_______

interest

is

Instead, the court

there was determining the meaning of the word "damages" as it was

used in an insurance policy.

See id. at 373.

___ ___

-16-

"[S]tatutory prejudgment interest is

damages

in a

Delaney,
_______

826

(R.I.

personal injury

99 F.3d at

1986)

26 (citing DiMeo v.
_____

(determining

personal injury action is purely

element of damages)).

action under

that

not an element of

Rhode Island

law."

Philbin, 502 A.2d 825,

_______

prejudgment

interest

in

statutory and therefore not

an

Having found

that, under Rhode Island law, prejudgment

interest is not considered

to determine the

purposes.

damages, we next look to

nature of prejudgment interest

federal law

for federal tax

See id.
___ ___

3.
3.

The

Prejudgment Interest Under Federal Law.

Prejudgment Interest Under Federal Law.

Supreme

Court

recently

explained

the

two

Ct. 2159,

2167

requirements for exclusion under Section 104(a)(2):

"First,
that

the

giving
upon

the

taxpayer

underlying

rise to
tort

or

the
tort

second, the taxpayer

damages

must

were

cause

demonstrate
of

action

recovery is

'based

type

rights';

and

must show that

the

received

'on

account

of

personal injuries or sickness.'"

Commissioner v. Schleier,
____________
________

(1995).

___ U.S.

___, 115 S.

The cause of action underlying Taxpayer's settlement was

assuredly

one based

upon tort or

then, to determine whether

tort type

rights.

Taxpayer has met the second

We look,

prong of

excludability.

Taxpayer

appears

to argue

that

the

purpose of

the

statutorily-imposed prejudgment interest is to make her whole, as

though the injury had never occurred.

statements

we

glean

from her

brief

-17-

This argument rests on two

to

the

effect that

the

interest imposed is meant

delay in the payment.

to compensate the injured party

for a

Though this argument may have some merit,

we reserve the question for another day.

to raise the contention that the

Because Taxpayer failed

statutorily-imposed prejudgment

interest is somehow related to her personal injury before the Tax

Court, she

has not preserved

that argument waived.

the argument for appeal.

See Mulero-Rodr guez

___ ________________

We find

v. Ponte, Inc.,
___________

98

F.3d 670, 679 (1st Cir. 1996) (noting that appellants' silence as

to a particular legal argument before the trial court amounted to

waiver

of

that issue

on appeal);

Social Workers v. Harwood, 69

_______________
_______

(setting forth the strenuous

see also National Ass'n of

_________ __________________

F.3d 622, 627-28

(1st Cir. 1995)

guidelines for finding an exception

to this waiver rule).

In

addition,

adequately present

any "make

appeal also supports a

We

'to

we

note

that

Taxpayer's

whole" argument

in

failure

to

her brief

on

finding that this issue has

been waived.

have previously recognized that "a litigant has an obligation

spell out

its arguments squarely

else

forever hold its peace."

F.2d

631, 634-35

Here,

argument, beyond

See Rivera-G mez

___ ____________

(quoting Paterson-Leitch Co.

___________________

Municipal Wholesale Elec. Co.,

_______________________________

1988)).

Taxpayer

840

has failed

"It

F.2d 985,

to

is not

enough

. . or

v. Castro, 843
______

v. Massachusetts
_____________

990

put forth

vague reference, regarding any

award of statutorily-imposed interest

injuries.

and distinctly' .

(1st

Cir.

coherent

relationship an

might have to her personal

merely

to

mention a

possible

argument

in the

most

skeletal way,

leaving

the court

to

do

-18-

counsel's

flesh on

work, create

its bones."

(1st Cir.),

the ossature for

the argument,

United States v. Zannino, 895

______________
_______

cert. denied, 494 U.S. 1082

____________

and put

F.2d 1, 17

(1990); see also

________

In re
_____

Three Additional Appeals Arising Out of the San Juan Dupont Plaza
_________________________________________________________________

Hotel Fire Litigation,

_____________________

93 F.3d 1, 2 n.2 (1st

Cir. 1996) (noting

that "it is beyond peradventure that we will not address an issue

when the party raising it fails to treat it seriously").

not "abandon the

in

settled appellate rule that issues

perfunctory

manner,

developed argumentation,

at 17.

unaccompanied

are deemed waived."

Because we refuse to

by

We will

adverted to

some

effort

at

Zannino, 895 F.2d

_______

guess at Taxpayer's argument,

any

"make-whole" argument she might have made is waived.

We decline

to pass

on this

question where the

court

below was not presented with either a legal argument or a factual

predicate

on

which

compensatory component

to

make

reasoned

of prejudgment

analysis

interest and where

not have the benefit of a properly briefed argument.

of

any

we do

CONCLUSION
CONCLUSION

For

the

foregoing

reasons,

affirmed.
affirmed
________

-19-

the

decision

below

is