T.C. Summary Opinion 2005-33
UNITED STATES TAX COURT
DIANNE M. AND CHARLES H. HEADEN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 20249-02S. Filed March 28, 2005.
Charles H. Headen, pro se.
Lorianne Masano, 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. Subsequent section
references are to the Internal Revenue Code in effect for 2000.
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 in petitioners’ 2000
Federal income tax in the amount of $2,213. The issue for
consideration is whether Social Security disability benefits
received in 2000 by Charles H. Headen are includable in
petitioners’ income for that year.
Background
Some of the facts have been stipulated and are so found. At
the time the petition was filed in this case, petitioners resided
in Ocala, Florida. References to petitioner are to Charles
Headen.1
In 1984, petitioner was injured in the line of duty as a
Florida highway patrol officer. As a result of his injuries,
petitioner underwent three surgeries and was out of work for
extended lengths of time from 1984 to 1993. During these
absences, petitioner collected worker’s compensation benefits.
In 1993, petitioner’s physician determined that petitioner
was “totally and permanently disabled from gainful employment”
and “incapable of any kind of work”. As a result of his
disability, petitioner was awarded “in line of duty” disability
retirement benefits from the State of Florida. In addition to
1
Dianne M. Headen neither appeared at trial nor signed the
stipulation of facts. The case will be dismissed as to her for
lack of prosecution. Rule 123(b). However, the decision will be
entered against petitioner Dianne M. Headen consistent with the
decision entered against petitioner Charles H. Headen.
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the State disability retirement benefits, petitioner continued to
receive worker’s compensation benefits. In or around 1998,
petitioner’s worker’s compensation benefits ended.
In September 1995, petitioner applied for Social Security
disability insurance (SSDI) benefits, which were awarded in
November 1998. The SSDI award included amounts attributable to
earlier years. Petitioner’s SSDI benefits were offset, dollar
for dollar, by the amount of worker’s compensation benefits
petitioner received. In addition to the SSDI benefits,
petitioner continued to receive disability retirement benefits
from the State of Florida.
In 2000, petitioner received SSDI benefits of $33,867.
Portions of the amount received in 2000 included unpaid SSDI
benefits for the taxable years 1996, 1997, and 1998.
Petitioners timely filed their 2000 Federal income tax
return. Taking into account wages, interest, and pension
distributions, they reported adjusted gross income of $36,101.
Petitioners did not include any portion of the SSDI benefits
received by petitioner in the income reported on their 2000
return.
In the notice of deficiency, respondent determined that a
portion of the SSDI benefits ($13,679) received by petitioner
during 2000 is includable in petitioners’ income for that year.
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Another adjustment made in the notice of deficiency is
computational.
Discussion
Section 61(a) provides that, except as otherwise provided by
law, gross income includes all income from whatever source
derived. Relevant for our purposes, section 86(a) provides that
if the taxpayer’s modified adjusted gross income2 plus one-half
of the Social Security benefits received by the taxpayer exceeds
the adjusted base amount, then gross income includes the lesser
of: (1) The sum of (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
taxable year. Sec. 86(a)(2). With respect to a married taxpayer
who files a joint return, the base amount and the adjusted base
amount are $32,000 and $44,000, respectively. Sec. 86(c)(1)(B)
and (2)(B).3 The adjustment made in the notice of deficiency
2
In this case, ignoring adjustments not relevant here,
petitioners’ modified adjusted gross income equals their adjusted
gross income. Sec. 86(b)(2).
3
Prior to 1984, certain disability benefits were excludable
from an employee’s gross income. 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.
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with respect to the SSDI benefits received by petitioner is
consistent with the above formula.4
Although not entirely clear from the record, some of the
SSDI benefits received in 2000 relating to prior years might have
been offset by worker’s compensation benefits also received
during those prior years. If so, the Federal income tax
consequences with respect to petitioner’s SSDI award remain the
same because the worker’s compensation benefits causing the
reduction in Social Security benefits are, for Federal income tax
purposes, treated as Social Security benefits. Sec. 86(d)(3);5
4
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 is available to a taxpayer
who receives a lump-sum payment of Social Security benefits
during the taxable year in which a portion of the benefits is
attributable to previous taxable years. Sec. 86(e). Sec. 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.
Petitioners did not make an election under section 86(e) with
respect to the lump-sum SSDI benefits received in 2000.
5
Sec. 86(d)(3) provides:
SEC. 86 (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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Mikalonis v. Commissioner, T.C. Memo. 2000-281.
According to petitioner, a portion of the lump-sum benefits
received in 2000 was a “rebate for attorney’s fees.” To the
extent that petitioner incurred attorney’s fees in securing the
SSDI award, those fees might well have been deductible. See sec.
212(1). Nevertheless, there is insufficient evidence in the
record to establish the amount of the fees, or the proper year
for any such allowable deduction.
Taking into account petitioners’ 2000 filing status, their
2000 modified adjusted gross income, and the SSDI benefits
petitioner received that year, we find respondent’s determination
as to the portion of petitioner’s SSDI benefits includable in
petitioners’ 2000 gross income is sustained.
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing,
Decision will be entered
for respondent.