Cir

MEMORANDUM

Kathleen Simpson settled an employment suit and received a large payout. Only a small portion of the settlement was included as income when she and her husband jointly filed their taxes the following year. The Internal Revenue Service issued a notice of deficiency, and the case proceeded to trial before the Tax Court. The Tax Court held that all but 10% of the settlement proceeds had to be included as income. The Simpsons moved for attorney fees. The Tax Court denied fees. The Simpsons timely appeal.

We review a decision of the Tax Court the same way we review any decision rendered by a district court in a civil bench trial. Comm’r v. Dunkin, 500 F.3d 1065, 1068 (9th Cir. 2007). Thus, we review the court’s factual findings for clear error, its discretionary rulings for abuse of discretion, and its conclusions of law de novo. Id. We review the Tax Court’s denial of attorney fees for abuse of discretion. Huffman v. Comm’r, 978 F.2d 1139, 1143 (9th Cir. 1992).

1. The settlement payments to Simpson were not made “under” California’s Workers’ Compensation Act, I.R.C. § 104(a)(1), and, therefore, could not be excluded from income. Because Simpson failed to seek approval…