T.C. Summary Opinion 2002-77
UNITED STATES TAX COURT
VERNON J. NICHOLAS, III, AND MICKI NICHOLAS, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 10398-00S. Filed June 27, 2002.
Vernon J. Nicholas III, pro se.
Rollin G. Thorley, for respondent.
PAJAK, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect at the time the petition was filed. The decision to be
entered is not reviewable by any other court, and this opinion
should not be cited as authority. Unless otherwise indicated,
subsequent section references are to the Internal Revenue Code in
effect for the years in issue.
Respondent determined deficiencies in petitioners’ 1997 and
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1998 Federal income taxes in the amounts of $3,625 and $1,526,
respectively. Petitioners conceded that they had unreported
income in the amounts of $748 in 1997 and $54 in 1998. The sole
issue the Court must decide is whether Social Security disability
payments are includable in gross income.
Some of the facts in this case have been stipulated and are
so found. Petitioners resided in Las Vegas, Nevada, at the time
they filed their petition.
Petitioners timely filed their joint 1997 Federal tax return
(1997 return). Petitioners reported adjusted gross income of
$51,316 on their 1997 return.
Petitioners timely filed their joint 1998 Federal tax return
(1998 return). Petitioners reported adjusted gross income of
$66,049 on their 1998 return.
Petitioner Micki Nicholas (petitioner) received Social
Security disability benefits in 1997 of $17,587. Portions of the
amount received in 1997 included unpaid disability claims for the
taxable years 1994, 1995, and 1996. Petitioner also received
$6,249 in Social Security disability benefits during 1998.
Petitioners did not report any portion of the disability benefits
received in 1997 and 1998 on their respective Federal income tax
returns.
Petitioners contend that the Social Security disability
benefits are not taxable and, additionally, that a portion of the
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benefits received in 1997 related to a work-related injury
settlement for prior taxable years. Respondent contends that 85
percent of the Social Security disability benefits received by
petitioner are subject to tax under section 86(a) and that
$14,949 and $5,312 is includable in petitioner’s gross income for
the taxable years 1997 and 1998, respectively.
In certain circumstances, section 7491 places the burden of
proof on respondent with regard to certain factual issues.
Because the facts in this case are undisputed, we find that
section 7491 has no bearing on the determination of the legal
issues before us.
Prior to 1984, certain disability benefits were excludable
from an employee’s gross income under section 105(d). Maki v.
Commissioner, T.C. Memo. 1996-209. However, this section was
repealed, and “since 1984 Social Security disability benefits
have been treated in the same manner as other Social Security
benefits.” Id.; accord Bradley v. Commissioner, T.C. Memo. 1991-
578. Accordingly, we hold that the Social Security disability
payments received by petitioner are subject to tax in the same
manner as other Social Security benefits.
Section 61(a) provides that gross income includes all income
from whatever source derived, unless excludable by a specific
provision of the Code. Moreover, section 86(a) requires the
inclusion of a portion of Social Security benefits in gross
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income when the sum of the recipient’s modified adjusted gross
income plus one-half of the Social Security benefits exceeds
certain threshold amounts. In the case of a joint return, when
this sum exceeds $32,000, the lesser of such excess or 50 percent
of the Social Security benefits received during the taxable year
must be included in gross income. Sec. 86(a)(1), (c)(1)(B).
When this sum exceeds $44,000 in the case of a joint return, up
to 85 percent of the Social Security benefits received during the
taxable year must be included in gross income. Sec. 86(a)(2),
(c)(2)(B). Under section 86, modified adjusted gross income in
general equals adjusted gross income with adjustments not
relevant here. Sec. 86(b)(2).
Social Security benefits are included in the recipient’s
gross income in the taxable year in which the benefits are
received. Sec. 86(a)(1). An election may be made by taxpayers
who receive lump-sum payments of Social Security benefits during
the taxable year in which a portion of the benefits is
attributable to previous taxable years. Sec. 86(e). Section
86(e) provides that, if the election is made, the amount included
in gross income for the taxable year of receipt must not exceed
the sum of the increases in gross income for those previous
taxable years that would result from taking into account the
portion of the benefits attributable to the previous taxable
years. Accordingly, if no election is made by the taxpayer under
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section 86(e), lump sum distributions of Social Security benefits
are includable in the taxpayer’s gross income in the taxable year
the benefits are received. Petitioners did not make an election
under section 86(e) with respect to the lump-sum Social Security
disability benefits received in 1997.
Accordingly, we sustain respondent’s determination that
petitioners’ gross income includes 85 percent of the respective
Social Security disability benefits received during the years in
issue.
Reviewed and adopted as a report of the Small Tax Case
Division.
Decision will be entered
for respondent.