Frank S. Watts and Barbara M. Watts v. United States

Frank S. Watts and Barbara M. Watts appeal from the judgment of the district court granting the United States’ cross-motion for summary judgment and dismissing with prejudice the Watts’ claim for a refund of federal income taxes. The Watts seek a tax refund for the years of 1976, 1977, and 1978, contending that section 105(c) of the Internal Revenue Code, 26 U.S.C. § 105 (c), allows the disability payments received by Frank Watts (Watts) in these years to be exempt from taxation.

The dispositive issue on appeal is whether the evidence presented by Watts demonstrates that these disability payments constitute payment for a “permanent loss or loss of use of a member or function of the body.” 26 U.S.C. § 105 (c). We hold that the evidence does not show such a loss; consequently, the district court correctly determined that these payments were not ex-cludable from Watts’ gross income.

I. STANDARD OF REVIEW

In reviewing the order granting the government’s cross-motion for summary judgment, we apply the same standard applicable to the district court. British Airways Board v. Boeing Co., 585 F.2d 946 , 951 n. 6 (9th Cir.1978), cert. denied, 440 U.S. 981 , 99 S.Ct. 1790 , 60 L.Ed.2d 241…