T.C. Memo. 2002-236
UNITED STATES TAX COURT
ROBERT B. AND DAISY A. MILEY, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 683-00. Filed September 19, 2002.
Robert B. and Daisy A. Miley, pro se.
C. Teddy Li, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COLVIN, Judge: Respondent determined a deficiency of $3,261
in petitioners’ 1997 Federal income tax. After concessions, the
sole issue for decision is whether petitioners may exclude from
income disability payments that petitioner Robert B. Miley
(petitioner) received under a disability policy in 1997. We hold
that they may not.
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Section references are to the Internal Revenue Code in
effect for 1997. Rule references are to the Tax Court Rules of
Practice and Procedure.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
A. Petitioners
Petitioners are married and resided in Glen Burnie,
Maryland, when they filed their petition.
Petitioner worked for Hearth Home Doors, LLC (Hearth Home)
in January 1997. He earned about $450 a week at that time. On
his 16th day of work in 1997, petitioner was injured in an
automobile accident. His injuries caused him to miss several
months of work. He never returned to work for Hearth Home.
B. Petitioner’s Disability Payments
Hearth Home was the plan holder for a disability insurance
policy issued by Guardian Life Insurance Co. of America
(Guardian) that covered petitioner. Guardian paid disability
payments to petitioner totaling $7,618 from January 17 to July
17, 1997, less amounts Guardian withheld for Social Security and
Medicare taxes.
C. Petitioners’ 1997 Return
In February 1998, Hearth Home issued to petitioner a Form W-
2, Wage and Tax Statement, which stated that he received $9,149
in wages in 1997. Petitioners did not report any income from
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Hearth Home or Guardian on their 1997 tax return or attach the
Form W-2 from Hearth Home to their 1997 return.
OPINION
Petitioners contend that Guardian’s payments to petitioner
of $7,618 were nontaxable disability benefits.1
Gross income includes all income from whatever source
derived. Sec. 61(a). Exclusions from income are a matter of
legislative grace and are construed narrowly. Commissioner v.
Schleier, 515 U.S. 323, 328 (1995). Taxpayers bear the burden of
proving that they are entitled to exclude the amounts claimed.2
Rule 142(a)(1).
1
Respondent determined that petitioner received unreported
income of $9,149, the amount that Hearth Home reported on the
Form W-2 that it issued to petitioner for 1997. Of that amount,
$7,618 was disability income and $1,531 was compensation that
petitioner received from Hearth Home for the 15 days he worked in
January 1997. Petitioners do not contend that the compensation
for the 15 days is excludable from income.
2
Petitioners do not contend that the burden of proof is on
respondent under sec. 7491, nor have petitioners established that
they complied with the requirements of sec. 7491(a)(2)(A) and (B)
to substantiate items, maintain required records, and fully
cooperate with respondent's reasonable requests.
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Disability benefits are excludable from gross income under
section 104(a)(3)3 or section 105(c)4 if certain requirements are
met. However, as discussed next, we conclude that those
requirements are not met.
3
SEC. 104. COMPENSATION FOR INJURIES OR SICKNESS.
(a) In General.–- * * * gross income does not
include--
* * * * * * *
(3) amounts received through accident or
health insurance * * * for personal injuries or
sickness (other than amounts received by an
employee, to the extent such amounts (A) are
attributable to contributions by the employer
which were not includible in the gross income of
the employee, or (B) are paid by the employer);
4
Sec. 105(c) provides in part:
SEC. 105. AMOUNTS RECEIVED UNDER ACCIDENT AND HEALTH
PLANS.
(c) Payments Unrelated to Absence From Work.--
Gross income does not include amounts referred to in
subsection (a) to the extent such amounts--
(1) constitute payment for the permanent loss
or loss of use of a member or function of the
body, or the permanent disfigurement, of the
taxpayer, his spouse, or a dependent (as defined
in section 152), and
(2) are computed with reference to the nature
of the injury without regard to the period the
employee is absent from work.
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A. Whether Petitioner’s Disability Payments Are Excludable as
Amounts Received Through Accident or Health Insurance
Gross income does not include amounts received through
accident or health insurance for personal injuries or sickness to
the extent those amounts are: (1) Attributable to contributions
by the employer which were includable in the gross income of the
employee, or (2) paid by the employee. Sec. 104(a)(3).
Petitioner’s disability payments were received through accident
or health insurance for personal injuries or sickness for
purposes of sections 104(a)(3) and 105(c). See Trappey v.
Commissioner, 34 T.C. 407, 408 (1960); Andrews v. Commissioner,
T.C. Memo. 1992-668. Thus, petitioner may exclude the disability
payments under section 104(a)(3) if the payments were
attributable to premiums paid by his employer that were included
in petitioner’s gross income. Sec. 104(a)(3). Similarly,
petitioner may exclude disability payments if he paid the
premiums for the disability policy. Id. If he did not pay the
premiums and his employer’s contributions were not included in
his income, the disability payments are includable in income
under section 105(a)5 unless an exception applies.
5
Sec. 105(a) provides in part:
SEC. 105. AMOUNTS RECEIVED UNDER ACCIDENT AND HEALTH
PLANS.
(a) Amounts Attributable to Employer
Contributions.--Except as otherwise provided in this
(continued...)
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Petitioner testified that he paid premiums of $3 per pay
period for his disability policy. His testimony does not
establish that the disability payments he received in 1997 were
attributable solely to contributions he made to the disability
policy or that the disability payments were not attributable in
whole or part to contributions by Hearth Home for the policy.6
There is no evidence that the Hearth Home contributions were
included in petitioner’s income.
B. Whether Petitioner’s Disability Payments Are Excludable as
Payments for Permanent Loss or Disfigurement
Gross income does not include disability benefits to the
extent that they constitute payment for the permanent loss or
loss of use of a member or function of the body, or the permanent
disfigurement, of the taxpayer, sec. 105(c)(1), and are computed
with reference to the nature of the injury without regard to the
period the taxpayer is absent from work, sec. 105(c)(2).
Petitioners do not contend that the disability payments are
5
(...continued)
section, amounts received by an employee through
accident or health insurance for personal injuries or
sickness shall be included in gross income to the
extent such amounts (1) are attributable to
contributions by the employer which were not includible
in the gross income of the employee, or (2) are paid by
the employer.
6
There is no evidence of what portion of the premiums
petitioner’s $3 contribution per pay period represents.
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excludable under section 105(c)(1). We conclude that the
disability payments petitioner received in 1997 are not
excludable from petitioners’ income under section 105(c).
C. Conclusion
Petitioner’s disability payments are includable in income
under section 105(a) and are not excludable from income under
section 104(a)(3) or section 105(c). Thus, petitioners
underreported their 1997 income by $9,149.
Decision will be
entered for respondent.