T.C. Memo. 2000-281
UNITED STATES TAX COURT
JOHN M. AND NORMA A. MIKALONIS, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 1060-99, 11599-99. Filed August 31, 2000.
Harry C. Citrino, Jr., for petitioners.
Joellyn R. Cattell, for respondent.
MEMORANDUM OPINION
DEAN, Special Trial Judge: Respondent determined
deficiencies of $2,632 and $2,260 in petitioners’ 1996 and 1997
Federal income taxes, respectively. The issue for decision is
whether Social Security benefits received by petitioner John M.
Mikalonis (petitioner) in 1996 and 1997 include the worker’s
compensation payments he received from a private insurer in each
year.
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The facts have been fully stipulated and are so found. All
section references are to the Internal Revenue Code in effect for
the years at issue, and Rule references are to the Tax Court
Rules of Practice and Procedure. Petitioners resided in
Philadelphia, Pennsylvania, at the time their petition was filed.
Background
Petitioner received worker’s compensation payments during
1996 and 1997 from a private insurer. Petitioners filed jointly
Forms 1040, U.S. Individual Income Tax Returns, for both years.
On their 1996 return, petitioners reported adjusted gross income
of $60,316. They reported Social Security benefits received of
$2,083 and treated $1,771 of that amount as taxable. Petitioners
did not report worker’s compensation benefits on their 1996
return.
Petitioner’s 1996 Form SSA-1099, Social Security Benefit
Statement, reports that petitioner received net benefits of
$37,548.1 The net benefits include payments made in 1996 of
$12,013 for 1994, $12,604 for 1995, and $12,932 for 1996. The
payments were reported as consisting of: (1) $1,743 paid by
check or direct deposit; (2) $340 in medicare premiums paid for
petitioner; (3) $34,967 in worker’s compensation offset; and (4)
$498 in attorney's fees and SSI offset.
1
All numbers have been rounded to the nearest dollar.
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Petitioners reported on their 1997 Form 1040, U.S.
Individual Income Tax Return, adjusted gross income of $50,338.
Petitioners did not report worker’s compensation payments, but
they did report Social Security benefits received of $2,152 and
treated $1,829 of that amount as taxable.
Petitioner’s 1997 Form SSA-1099 reports that petitioner
received net benefits of $13,309 for 1997. The net benefits
received were reported as consisting of: (1) $1,626 paid by
check or direct deposit; (2) $526 in medicare premiums paid for
petitioner; and (3) $11,656 in worker’s compensation offset. Of
these amounts $498 is nontaxable payments.
Respondent determined that the worker’s compensation offsets
reported on petitioner’s Forms SSA-1099 for taxable years 1996
and 1997 must be included in his Social Security benefits
received.2 The deficiency at issue results from the
2
Respondent also determined that the $498 reported as
attorney's fees and SSI offset on petitioners’ 1996 Form SSA-
1099, which petitioners failed to report on their 1996 Federal
income tax return, are Social Security benefits received by
petitioner. It is not clear whether any of this amount is for
1996 or whether it is attributable to the 2 earlier years for
which benefits were paid in 1996. Although petitioners contested
in their petition the entire deficiency determined by respondent,
they made no stipulations or argument on brief regarding this
amount. We thus deem them to have conceded this issue. See
Rybak v. Commissioner, 91 T.C. 524, 566 n.19 (1988); Zimmerman v.
Commissioner, 67 T.C. 94, 104 n.7 (1976).
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corresponding increase in petitioners’ adjusted gross income.3
Petitioners contend that the Social Security benefits
reported on the Forms SSA-1099 as “worker’s compensation offset”
should not be included as part of petitioner’s Social Security
benefits. They argue that there was no “offset” but merely a
“nonpayment” because neither petitioner nor the insurance company
that paid the worker’s compensation benefit to petitioner
received payments of the amounts reported from the Social
Security Administration.
Discussion
Gross income includes “all income from whatever source
derived”, unless specifically excluded. Sec. 61(a). Generally,
gross income does not include “amounts received under workmen’s
compensation acts as compensation for personal injuries or
sickness.” Sec. 104(a)(1). Social Security benefits, however,
are included in gross income as provided by section 86.
Married taxpayers filing a joint return whose modified
adjusted gross income plus one-half of their Social Security
3
The increase in petitioners’ adjusted gross income in
1996 resulted in a computational adjustment to petitioners’
itemized deductions. Petitioners appear to dispute this
adjustment, alleging in their petition that respondent erred in
disallowing certain expenses and deductions. Petitioners,
however, have presented no evidence or argument regarding this
issue, and we thus deem them to have conceded it. See Rybak v.
Commissioner, supra; Zimmerman v. Commissioner, supra. Our
determination of the Social Security issue will resolve the
computational adjustment.
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benefits exceeds $44,000 must include up to a maximum of 85
percent of their Social Security benefits in their gross income.
See sec. 86(a), (b), and (c).
Respondent determined that 85 percent of the Social Security
benefits petitioner received for 1996 and 85 percent of the
benefits he received for 1997 are includable in his gross income
for each respective tax year. Petitioners do not dispute that 85
percent of the Social Security benefits petitioner received for
each year is taxable, nor do they dispute that petitioner
received worker’s compensation benefits from a private insurer in
the amounts by which his Social Security benefits were offset.
Petitioners, however, argue that the Social Security
Administration never paid the benefits reported as worker’s
compensation offset, and thus those amounts should not be
included in petitioners’ gross income.
Section 86(d)(3) clearly provides that such offsets are
Social Security benefits for purposes of determining gross
income;
if * * * any social security benefit is reduced by
reason of the receipt of a benefit under a workmen’s
compensation act, the term “social security benefit”
includes that portion of such benefit received under
the workmen’s compensation act which equals such
reduction.
Section 86 was added to the Internal Revenue Code by the
Social Security Amendments Act of 1983, Pub. L. 98-21, sec. 121,
97 Stat. 80. The House report states in relevant part:
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social security benefits potentially subject to tax
will include any workmen’s compensation whose receipt
caused a reduction in social security disability
benefits. For example, if an individual were entitled
to $10,000 of social security disability benefits but
received only $6,000 because of the receipt of $4,000
of workmen’s compensation benefits, then for purposes
of the provisions taxing social security benefits, the
individual will be considered to have received $10,000
of social security benefits. [H. Rept. 98-25, at 26
(1983), 1983 U.S.C.C.A.N. 219, 244.]
Petitioners argue that section 86(d)(3) “does not call for
offsets to be considered taxable income.” They contend that the
legislative intent of the statute is “to tax the Social Security
benefits which were to be paid in place of the workers’
compensation benefits once workers’ compensation benefits were
terminated”.
Petitioners’ interpretation of the statute is without merit.
The language of section 86(d)(3) is unambiguous. Neither the
clear language of the statute nor the explanation in the
legislative history conceives that an actual payment from the
Social Security Administration is required in order to have an
offset. The provisions of the statute apply to worker’s
compensation benefits paid from a private insurer. See Willis v.
Commissioner, T.C. Memo. 1997-290.
Accordingly, we uphold respondent’s determination that
petitioner’s Social Security benefits for 1996 and 1997 include
those amounts reported on his Forms SSA-1099 as attributable to
those years.
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On brief, petitioners request that they either be permitted
to elect the limitation provisions of section 86(e) for the lump-
sum benefits paid in 1996 or that they be permitted to refund the
amounts actually paid to them by the Social Security
Administration. The election provisions of section 86(e), even
if petitioners were able to perfect such an election, would do
nothing to limit petitioners’ tax liability. Respondent’s
determination of the deficiency in petitioners’ 1996 tax year
resulted from the inclusion of only $12,932 of Social Security
benefits, which are the benefits reported as attributable to
1996.
Petitioners’ alternative request likewise affords them no
relief. Taxpayers reporting income on the cash method of
accounting, such as petitioners, must include an item in income
for the taxable year in which the item is actually or
constructively received. See sec. 451(a). Petitioners may not
retroactively erase the receipt of income in 1996 and 1997 by
refunding it in a subsequent tax year. See Simon v.
Commissioner, 11 T.C. 227, 231-232 (1948); see also Commissioner
v. Gaddy, 344 F.2d. 460 (5th Cir. 1965), affg. in part and
remanding in part 38 T.C. 943 (1962); Florida Progress Corp. &
Subs. v. Commissioner, 114 T.C. 587, 598 (2000)(discussing claim
of right doctrine). We thus confine our consideration of
petitioners’ tax liability to the specific facts presented.
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To reflect the foregoing,
Decisions will be entered
for respondent.