Strodnyks V. Stadnyk Case Summary

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In the case of Stadnyk vs. Commissioner, Mrs. Stadnyk bought a car from Nicholasville Auto and the car broke down on the way home from the dealership. Due to the car breaking down, she called her bank to cancel the payment order on her check due to a dissatisfied purchase. Her bank incorrectly stamped the check as insufficient funds and returned the check to Nicholasville Auto. The auto dealer proceeded to file a criminal complaint against Mrs. Stadnyk for paying with a worthless check in the amount of $1,100. Mrs. Stadnyk was then arrested at her home and taken into custody where she was detained for approximately eight hours until she posted bail. She did not suffer any physical injury from the event but she did see a psychologist for emotional suffering. Mrs. Stadnyk filed a lawsuit against the owner of the auto dealer and the bank that stamped her check incorrectly. Eventually, Mrs. Stadnyk agreed …show more content…

Mrs. Stadnyk did not report the $49,000 on her tax return. The Internal Revenue Service later found her liable for a tax deficiency since she did not report this income. Section 61(a) states that unless otherwise specifically provided, gross income includes all income from whatever source derived. IRC § 61(a). Section 104(a)(2) states that gross income does not include the amount of any damages received on account of personal physical injuries or physical sickness. IRC § 104(a)(2). The tax court held that since the income is not excluded under section 104(a)(2) Mrs. Stadnyk is liable for the tax deficiency and the accuracy related penalty. Stadnyk v. Commissioner 96 T.C.M. 475, (Dec. 22, 2008). Stadnyk appealed the tax court’s ruling and the 6th Circuit of Appeals Court affirmed. This has case has been cited four times as either favorably or without comment. Since Marlene did not obtain any physical injuries the income from her settlement doesn’t qualify for the section 104(a)(2) exclusion, thus she must report the $100,000 as ordinary income

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