Faulty Grammar May Have Lost Tax Court Case

(Re-printed from Gibbon's and Kawash's Fall Newsletter.) Do the abbreviations "i.e." and "e.g." confuse you? Are you unsure of which one to use?

A recent tax case required the court to deliver a grammar lesson.

First, a little background on the tax issue involved in the case (Laura Seidel v. Commisioner, CA-9, 2009-1 USTC 50,370 April 28, 2009)

Compensation received from physical injury is generally excluded from income. However, emotional trauma is not considered a physical injury. So payments received for emotional distress are fully taxable.

In a settlement with her former employer, Laura Seidel received $157,000. The settlement agreement described the payments as being for "personal injury (i.e. emotional distress) damages only."

The case originally went before the Tax Court in 2007. All of the parties-the Court, Seidel and the IRS-focused attention on the "i.e.".

Seidel argued that emotional distress was an example of the type of injuries she had received. The IRS argued that "i.e." is a limiting phrase that should be read to mean that emotional distress was the only type of personal injury being compensated by the payment.

The tax court observed that "i.e." is an abbreviation for a Latin phrase id est, which roughly means "that is" or "that is to say". Accordingly, the court agreed with the IRS.

Now the Court of Appeals for the 9th Circuit has upheld the Tax Court. Interestingly, the higher court did not comment on the Tax Court's grammar skills. The appellate court simply upheld the Tax Court's decision in an unpublished opinion.

Note that Seidel might have fared better if the settlement agreement had used "e.g." instead of "i.e.". Both are abbreviations for Latin terms. However, "e.g." stands for exempli gratia which means "for example".