T.C. Summary Opinion 2005-24
UNITED STATES TAX COURT
BONNIE J. AND ERNEST R. WERTS, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5160-03S. Filed March 1, 2005.
Bonnie J. and Ernest R. Werts, pro se.
Fred E. Green, Jr., for respondent.
COUVILLION, Special Trial Judge: This case was heard
pursuant to section 7463 in effect when the petition was filed.1
The decision to be entered is not reviewable by any other court,
and this opinion should not be cited as authority.
1
Unless otherwise indicated, section references
hereafter are to the Internal Revenue Code in effect for the year
at issue. All Rule references are to the Tax Court Rules of
Practice and Procedure.
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Respondent determined a deficiency of $705 in petitioners'
Federal income tax for the year 2000.
The sole issue for decision is whether Social Security
benefits received by petitioners during 2000 are includable in
gross income under section 86(a).
Some of the facts were stipulated. Those facts and the
accompanying exhibits are so found and are incorporated herein by
reference. Petitioners' legal residence at the time the petition
was filed was Carson City, Nevada.
Petitioners each received Social Security retirement
benefits during the year 2000, which totaled $19,416.
Petitioners were also gainfully employed during 2000 and earned
combined wage and salary income of $31,649 that year.
For the year 2000, petitioners filed a Federal income tax
return on Form 1040EZ, Income Tax Return for Single and Joint
Filers With No Dependents. On that return, petitioners reported
the $31,649 wage and salary income they earned that year.
Petitioners, however, did not report as income any portion of the
$19,416 in Social Security benefits they received that year.2
2
The Form 1040EZ used by petitioners does not provide
for the reporting of other types of income, such as Social
Security benefits. That form contemplates only the reporting of
wage and salary income, taxable interest income, and unemployment
compensation. Petitioners did not use the proper form. They had
other sources of income; i.e., Social Security retirement
benefits.
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In the notice of deficiency, respondent determined that
$4,679 of the Social Security benefits received by petitioners
during 2000 represented gross income and determined a deficiency
in tax based upon the inclusion of that amount with the wage and
salary income petitioners reported. No other adjustments were
proposed in the notice of deficiency. At trial, the testimony of
petitioners indicated that they might be entitled to a dependency
exemption deduction for their son, who was disabled due to an
accident. Rule 41(b)(1). After the trial, respondent agreed
that petitioners would be allowed to produce evidence of the
support they provided for their son. Thereafter, respondent
filed a report with the Court, conceding that petitioners were
entitled to a dependency exemption deduction for their son.
With respect to the Social Security income at issue,
petitioners contend that they have never reported their
retirement benefits as income in prior years, nor have their
income tax returns ever been audited so as to require inclusion
of their benefits in income. However, 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), for the year at issue, provides that, if
the modified adjusted gross income of the taxpayer, plus one-half
of the Social Security benefits received, exceeds the adjusted
base amount, gross income includes the lesser of (1) the sum of
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(a) 85 percent of such excess, plus (b) the lesser of (i) one-
half of the Social Security benefits received during the year, or
(ii) one-half of the difference between the adjusted base amount
and the base amount of the taxpayer, or (2) 85 percent of the
Social Security benefits received during the year. Sec.
86(a)(2). The base amount and the adjusted base amount for the
year at issue for a joint return are $32,000 and $44,000,
respectively. Sec. 86(c)(1)(B) and (2)(B). Petitioners do not
challenge respondent's computation under this formula that
results in $4,679 of their Social Security benefits' being
includable in gross income. Petitioners contend only that
respondent never challenged their omission of such income on
prior years' returns. The mere fact that omission of such income
on petitioners' prior returns was never questioned by respondent
is not a basis for the exclusion of such income on subsequent
returns that are questioned by respondent. Each taxable year
stands alone, and respondent may challenge in a succeeding year
what was condoned or agreed to in a former year. Boatner v.
Commissioner, T.C. Memo. 1997-379 (citing Auto. Club v.
Commissioner, 353 U.S. 180 (1957)), affd. 164 F.3d 629 (9th Cir.
1998). Respondent, therefore, is sustained in including the
subject income on petitioners' 2000 return. As noted above,
petitioners are entitled to a dependency exemption deduction for
their son for the year at issue based on respondent's concession.
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Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
under Rule 155.