Domeny v. Commissioner
United States Tax Court
T.C. Memo 2010-9 (2010)
Julie Domeny (plaintiff), diagnosed with multiple sclerosis before joining a nonprofit as a fundraiser, repeatedly complained to her employer's board about a supervisor's interference and alleged embezzlement, and claimed the resulting stress worsened her MS symptoms. After her doctor ordered sick leave, the employer fired her, and she settled her potential legal claims for two payments: one clearly for her 2005 work, and a second, undocumented payment the employer booked as non-employee compensation without withholding taxes. The IRS commissioner (defendant) determined the second payment was taxable gross income, and Domeny petitioned the Tax Court, arguing it compensated her for her MS-related injury.
Whether a federal taxpayer may show, by all the facts and circumstances, that an otherwise unexplained payment was made on account of the taxpayer's injuries or sickness in order to exclude it from gross income.