T.C. Summary Opinion 2002-141
UNITED STATES TAX COURT
ROBERT P. GEISZLER, JR. AND PENNY V. GEISZLER, Petitioners
v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 4600-01S. Filed October 29, 2002.
Robert P. Geiszler and Penny V. Geiszler, pro sese.
Shelley T. Van Doran, for respondent.
CARLUZZO, 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. Unless otherwise
indicated, subsequent section references are to the Internal
Revenue Code in effect for the year in issue. Rule references
are to the Tax Court Rules of Practice and Procedure. The
decision to be entered is not reviewable by any other court, and
this opinion should not be cited as authority.
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Respondent determined a deficiency of $1,193 in petitioners’
1997 Federal income tax. The issue for decision is whether
certain benefits received by Penny V. Geiszler on account of an
employment-related injury are includable in petitioners’ income.
Background
Some of the facts have been stipulated and are so found.
Petitioners are husband and wife. They filed a timely 1997 joint
Federal income tax return. At the time the petition was filed,
petitioners resided in Houston, Texas. References to petitioner
are to Penny V. Geiszler.
During 1991, petitioner suffered an employment-related
injury. As a result of her injury, she was entitled to receive,
and received during 1997 and prior years, the following:
(1) State worker’s compensation benefits; (2) Social Security
disability insurance (SSDI) benefits; and (3) long-term
disability benefits attributable to a plan offered by her
employer, the cost of which was paid partly by her employer and
partly by her.
Notwithstanding the seriousness and debilitating nature of
her injury, applying for and receiving the above-mentioned
benefits proved to be a frustrating experience for petitioner.
For example, her request for worker’s compensation benefits was
originally denied by her employer’s worker’s compensation
carrier. She began receiving worker’s compensation benefits
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several years after her injury, but only after she successfully
appealed the denial through a State administrative proceeding.
Pursuant to the provisions of her long-term disability plan, she
was required to apply for SSDI coverage, which became effective
sometime during 1994. The SSDI benefits that she received
reduced, dollar for dollar, her long-term disability benefits.
Similarly, her SSDI benefits were offset, dollar for dollar, by
the worker’s compensation benefits that she received. See 42
U.S.C. sec. 424a (1994). Receiving benefits from three sources
further complicated matters, and she repeatedly received
inconsistent notices from the payors regarding overpayments and
other irregularities.
According to a Form SSA-1099 issued by the Social Security
Administration, petitioner received SSDI benefits totaling
$10,779 during 1997. Because of the offset provisions referred
to above, worker’s compensation benefits of $8,406 received by
petitioner during 1997 are included in the amount reported on the
Form SSA-1099.
Petitioners reported adjusted gross income of $41,600 on
their 1997 return, which amount consists entirely of the wages
earned by Robert Geiszler during that year. As in prior years,
none of the benefits that petitioner received on account of her
injury are included in petitioners’ income.
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In the notice of deficiency, respondent determined that a
portion of the SSDI benefits (including the amount offset by
petitioner’s worker’s compensation benefits) are includable in
petitioners’ income. Other adjustments made in the notice of
deficiency are not in dispute.
Discussion
Worker’s compensation benefits are generally excluded from
the recipient taxpayer’s gross income. Sec. 104(a)(1). Social
Security benefits, including SSDI benefits, are includable in the
recipient taxpayer’s income in accordance with a formula that
takes into account a variety of factors, including the amount of
Social Security benefits received by the taxpayer and the
taxpayer’s filing status. See sec. 86. If a taxpayer’s Social
Security benefits are reduced by amounts received under a
worker’s compensation act, then, for Federal income tax purposes,
the worker’s compensation benefits are treated as Social Security
benefits. See sec. 86(d)(3)1; Mikalonis v. Commissioner, T.C.
1
Sec. 86(d)(3) provides:
SEC. 86(d)(3). Workmen’s Compensation Benefits
Substituted for Social Security Benefits.--For purposes of
this section, if, by reason of sec. 224 of the Social
Security Act (or by reason of sec. 3(a)(1) of the Railroad
Retirement Act of 1974), 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.
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Memo. 2000-281.
In this case, petitioner’s SSDI benefits were reduced,
dollar for dollar, by the worker’s compensation benefits that she
received. Her situation is clearly contemplated by section
86(d)(3), and the worker’s compensation benefits that she
received during the year in issue are subject to Federal income
tax as provided in that statute.
Petitioners do not suggest that respondent’s application of
section 86 is mathematically erroneous, and we are satisfied that
it is not. Petitioners explain that petitioner would not have
applied for SSDI benefits unless required to do so by her long-
term disability plan. They question the fairness of the
situation, pointing out that, had she not applied for SSDI
benefits, her worker’s compensation benefits would not be subject
to Federal income tax. According to petitioners, forgoing
petitioner’s SSDI benefits might have been to their financial
advantage.
We appreciate petitioners’ consternation; nevertheless, it
is the application of controlling law to the undisputed facts
that informs our decision–-not whether the result is fair or, as
petitioners suggest, unfair. Section 86(d)(3) requires that a
portion of the SSDI benefits (including the amount offset by
worker’s compensation benefits) received by petitioner during
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1997 must be included in petitioners’ income for that year.
Respondent’s determination in this regard is therefore sustained.
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing, and the resolution of undisputed
adjustments,
Decision will be
entered under Rule 155.