Summary Calendar CHRISTOPHER JMCCANN; VICKILYNN MMCCANN v. Commissioner of Internal Revenue

* Pursuant to 5TH CIR. R. 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
United States Court of Appeals
Fifth Circuit
F I L E D
February 11, 2004
Charles R. Fulbruge III
Clerk
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 03-60510
Summary Calendar
CHRISTOPHER J MCCANN; VICKILYNN M MCCANN
Petitioners - Appellants
v.
COMMISSIONER OF INTERNAL REVENUE
Respondent - Appellee
--------------------
Appeal from the Decision of the
United States Tax Court
No. 370-01
--------------------
Before KING, Chief Judge, and DAVIS and PRADO, Circuit Judges.
PER CURIAM:*
Petitioners-Appellants Christopher McCann and Vickilynn
McCann appeal from a decision of the United States Tax Court,
which upheld the Commissioner’s determination that they owed
$83,667 in unpaid Federal income taxes for the 1994 tax year.
For the following reasons, we AFFIRM.

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1 The state court found that the LPCF was entitled to a
$100,000 credit because the McCanns had settled their claim
against Pendleton Memorial Methodist Hospital.
I. BACKGROUND
In 1985, the McCanns filed a medical malpractice lawsuit
against Pendleton Memorial Methodist Hospital in Louisiana state
court. Although the McCanns settled their claim against the
hospital in April 1992, they proceeded to trial against the
Louisiana Patient’s Compensation Fund (LPCF). In Louisiana, the
medical malpractice liability of a health care provider is
limited to $100,000, LA. REV. STAT. ANN. § 40:1299.42 B(2) (West
2001), but––to the extent that a medical malpractice judgment or
settlement exceeds “the total liability of all liable health care
providers”––the LPCF is responsible for paying the remainder of
the judgment or settlement, up to a statutory maximum of $500,000
plus interests and continuing health care costs. Id.
§ 1299:42 B(1), (3). After a trial and jury verdict, which
awarded the McCanns $500,000 in damages, the state court entered
judgment against LPCF in the amount of $400,000 “plus all legal
interest from the date of judicial demand.”1
On March 25, 1993, the McCanns filed a motion to fix
interests and costs. In their motion, the McCanns itemized the
total interest that had accrued from the date they filed their
complaint; as of March 24, 1993, they claimed that the total
interest owed was $407,323.31 and additional interest was
accruing at a rate of $76.72 per day. The state court agreed,

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granted the motion for the interest and per diem rate requested
by the McCanns, and held that the LPCF was also responsible for
$8,588.05 in litigation costs. The LPCF appealed to the
Louisiana Court of Appeals, which affirmed the judgment of the
trial court.
In August 1994, the parties agreed to settle the case and
the LPCF issued a $839,000 check to the McCanns. On the check
stub, the payment was divided into two amounts, each followed by
a numerical code: these codes indicated that $400,000 of the
payment was for general damages while $439,000 was payment for
interest. A week later, the McCanns filed a “Release and
Satisfaction of Judgment” in the state trial court, in which they
declared
that the Judgment of the Civil District Court for the
Parish of Orleans, State of Louisiana . . . in the amount
of FOUR HUNDRED THOUSAND AND NO/100 DOLLARS ($400,000.00)
plus legal interest from the date of judicial demand plus
costs in the amount of EIGHT THOUSAND FIVE HUNDRED
EIGHTY-EIGHT AND 05/100 DOLLARS ($8588.05), in favor of
Christopher J. McCann, III and Vickilynn M. McCann and
against the Louisiana Patient’s Compensation Fund has
been paid in full . . . .
The parties also memorialized the settlement agreement in a
document entitled “Receipt, Release and Compromise Agreement With
Indemnity” (the “RRC Agreement”). Under this agreement, the LPCF
stated that it had “pa[id] the sum of EIGHT HUNDRED THIRTY-NINE
AND NO/100 DOLLARS [sic] ($839,000.00) to the McCanns” in
consideration for the McCann’s agreement to release the LCPF from

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2 Before the tax court, the Commissioner conceded that
the amount of taxable interest should be reduced by $642. It
later recalculated the McCanns’ 1994 tax deficiency at $83,667.
all present and future liability arising out of the medical
malpractice lawsuit.
The McCanns did not report any portion of the $839,000
settlement as income in their 1994 federal income tax return.
After an audit, Defendant-Appellee, the Commissioner of the
Internal Revenue Service, concluded that only $400,000 of the
settlement was for personal injury damages and excludable from
the McCann’s gross income under I.R.C. § 104(a)(2) (1994). The
remaining $439,000, however, the Commissioner determined to be
interest, which must be included as income under I.R.C.
§ 61(a)(4) (1994). The Commissioner reduced the $439,000 sum to
account for the pro rata portion of the McCanns’ attorneys fees
and costs that they paid out of the interest income and concluded
that they had failed to report a taxable interest income of
$256,625. Accordingly, on October 5, 2000, the Commissioner
issued a notice of deficiency stating that the McCanns owed
$83,922 in unpaid taxes.2
The McCanns responded by petitioning the tax court for a
redetermination of the deficiency. They argued that the entire
$839,000 settlement payment was excludable from their income as
personal injury damages because no portion of this payment was
identified in the settlement as interest. The tax court
disagreed, and it held that because Louisiana law limits the

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LPCF’s liability for compensatory damages to $400,000, the
portion of the settlement in excess of $400,000 must have been
payment for interest. Therefore, on February 14, 2003, the tax
court issued an opinion upholding the Commissioner’s deficiency
determination. On April 17, 2003, the McCanns moved the tax
court either to vacate its decision or to reconsider its opinion.
Attached to this motion, the McCanns submitted a sworn affidavit
from their former medical malpractice attorney, in which he
stated that the LPCF agreed to pay a lump-sum settlement that was
not allocated between damages and interest. The tax court issued
a brief order denying both motions on June 9, 2003.
II. DISCUSSION
The McCanns present two main contentions on appeal. First,
they assert that the tax court improperly allocated a portion of
their lump-sum settlement agreement to taxable interest income
and instead should have treated the entire amount as non-taxable
compensation for physical injuries under I.R.C. § 104(a).
Second, they argue that the tax court erred by not granting their
motion to reconsider in light of the additional evidence they
submitted with the motion.
A. Allocation of the Settlement Proceeds
We review tax court decisions under the same standards used
to review district court decisions in civil actions. Houston Oil
& Minerals Corp. v. Commissioner, 922 F.2d 283, 285 (5th Cir.
1991); see also I.R.C. § 7482(a)(1) (2000). A tax court’s

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allocation of settlement proceeds is a factual determination,
which we will disturb only on a finding of clear error. See
Srivastava v. Commissioner, 220 F.3d 353, 365 (5th Cir. 2000).
The McCanns claim that the settlement agreement, which
provided that the LPCF would pay $839,000 in consideration for a
release of liability, was cast in terms of a single payment and
did not allocate the payment between interest and damages.
Therefore, under Robinson v. Commissioner, 70 F.3d 34 (5th Cir.
1995), they claim that the tax court should have given a “proper
regard” to this allocation of the proceeds because it was
approved by the state trial court. See id. at 37 (“Although the
Tax Court is not bound by a state court’s allocation of
settlement proceeds, it must give ‘proper regard’ to allocations
made by state courts when such allocations are entered by the
court in a bona fide adversary proceeding.”).
The McCanns’ reliance on Robinson is unavailing. In
Robinson, the parties drafted a settlement agreement that
expressly stated that it was designed to compensate the
plaintiffs for their mental anguish and lost profits, both of
which may be excluded from gross income, and that none of the
proceeds were attributable to punitive damages, which must be
included in gross income. See id. at 36. Although the state
court entered a final judgment based on this agreement, we held
that the tax court’s decision to look beyond the wording of the
settlement and to reallocate some of the proceeds to taxable

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punitive damages was not clearly erroneous because, as the tax
court noted, it appeared that the trial judge had simply “rubber
stamped” the settlement after it was drafted by the plaintiffs’
attorneys. Id. at 37-38. We also noted that, because the
parties entered their settlement agreement following a jury
verdict, the tax court could base its allocation of the proceeds
on that verdict because it provided “the best indication of the
worth of the [plaintiffs’] claims.” Id. at 38; see also
Srivastava, 220 F.3d at 365 (noting that the tax treatment of
settlements should be determined by asking “in lieu of what was
the . . . settlement awarded?”) (internal quotation marks and
citation omitted).
Robinson does not support the result sought by the McCanns
for at least two reasons. First, unlike Robinson, the RRC
agreement in this case does not expressly state that the LPCF’s
$839,000 payment was intended to compensate the McCanns only for
personal injury damages. Thus, there was no express allocation
of the proceeds, upheld by the state court, to which the tax
court should have afforded “proper regard.” Second, Robinson
explicitly approves of the method employed by the tax court to
allocate the settlement proceeds in this case. The tax court
based its allocation––$400,000 to excludable damages and $439,000
to taxable interest––on the jury’s verdict. Critically, the jury
found that the McCanns were entitled to receive $500,000, the
maximum amount of compensatory damages allowed under Louisiana

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law; after adjusting this award to reflect that Pendleton
Memorial Methodist Hospital was statutorily responsible for the
first $100,000 in damages, the state court entered judgment
against the LPCF in the amount of $400,000 in damages plus
interest and costs. Therefore, it was not clearly erroneous for
the tax court to agree with the Commissioner’s determination
that, to the extent that the settlement exceeded $400,000, the
payment was attributable to interest and costs. Cf. Rozpad v.
Commissioner, 154 F.3d 1, 3-4 (1st Cir. 1998) (holding
that––“when there has been a jury verdict and an ensuing judgment
that contains separate itemizations of damages and interest––a
subsequent settlement that does not purport to make a different
allocation is quite logically viewed as including a pro rata
share of interest”).
The McCanns further claim that the tax court improperly
relied on the numerical coding on the LPCF settlement check,
which identified $400,000 of the settlement payment as damages
and $439,000 of the payment as interest, when it upheld the
Commissioner’s allocation. They claim that this result allows
the LPCF to alter the terms of the lump-sum settlement agreement
“unilateraly.” We disagree. As we stated in Srivastava, it is
“the payor’s intent, rather than the payee’s, that carries the
most weight” in the allocation of settlement proceeds for tax
purposes. 220 F.3d at 365-66. If the LPCF intended, as the
check stub suggests, that a portion of its payment remunerate the

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3 The McCanns’ suggestion that the LPCF intended to pay
more than $400,000 in compensatory damages to settle this case,
out of a fear that the statutory cap on damages would be deemed
unconstitutional, is similarly unavailing. In 1989,
approximately five years before these settlement negotiations
took place, the Louisiana Supreme Court expressly held that the
$400,000 limit on the LPCF’s liability was not constitutionally
infirm. Williams v. Kushner, 549 So.2d 294, 296 (La. 1989).
McCanns for the interest that they would have had to pay on the
court’s judgment, this evidence was properly considered by the
tax court. Moreover, because Louisiana law limits the damages
liability of the LPCF to $400,000, the tax court’s decision to
uphold the Commissioner’s allocation of the remaining $439,000 to
interest and costs was not clearly erroneous.3
B. Motion to Reconsider
We review the tax court’s denial of a motion to vacate and
to reconsider its judgment for an abuse of discretion. See
Tweeddale v. Commissioner, 841 F.2d 643, 646 (5th Cir. 1988);
Drobny v. Commissioner, 113 F.3d 670, 676 (7th Cir. 1997). In
their motion, the McCanns argued that the tax court should
reconsider its decision based on additional evidence that they
claimed demonstrated that the LPCF did not contemplate allocating
any of the lump-sum settlement payment to interest during the
settlement negotiations. But, because the affidavit on which the
McCanns relied was available before trial, the McCanns could have
presented this evidence before the tax court rendered its
decision. Therefore, we conclude that the tax court did not
abuse its discretion by denying the McCanns’ motion. See

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Tweedale, 841 F.2d at 646; cf. Robinson, 70 F.3d at 39 (“[S]uch
motions should be denied where the evidence to be presented was
available at trial, or could have been obtained with reasonable
diligence.”).
III. CONCLUSION
Accordingly, we affirm the judgment of the tax court.

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