T.C. Summary Opinion 2005-63
UNITED STATES TAX COURT
ROBERT E. AND CAROL J. CAWVEY, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 9131-04S. Filed May 24, 2005.
Robert E. and Carol J. Cawvey, pro sese.
Michael F. O’Donnell, for respondent.
GOLDBERG, 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 year in issue.
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Respondent determined a deficiency in petitioners’ Federal
income tax of $608 for the taxable year 2001.
The issue for decision is whether certain worker’s
compensation benefits received by Carol J. Cawvey in lieu of
Social Security disability benefits are includable in
petitioners’ gross income for taxable year 2001 under section 86.
The adjustments resulting from the disallowance of a portion of
the deduction petitioners claimed for medical expenses are
computational and will be resolved by the Court’s holding on the
Social Security benefits issue.
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. Petitioners resided in
Plainfield, Illinois, on the date the petition was filed in this
case. Robert E. Cawvey appeared before the Court and presented
petitioners’ case. Carol J. Cawvey (petitioner) did not appear.1
During most of 2000, petitioner worked for Aramark, a
private food servicing company which provided employees to the
Illinois Department of Correction’s kitchen services. On October
12, 2000, petitioner was injured in a work-related accident. In
November of 2000, petitioner applied for and received State of
1
Petitioners had recently separated before trial; however,
all the parties agreed that Robert E. Cawvey was authorized to
represent Carol J. Cawvey’s interest.
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Illinois worker’s compensation benefits. In 2001, petitioner
continued to receive worker’s compensation benefits of
$15,738.32.
In 2001, petitioner’s attorney advised her to file for
Social Security Disability Insurance benefits. In April of 2001,
petitioner applied for Social Security benefits. According to
Form SSA-1099, Social Security Statement, issued by the Social
Security Administration, petitioner received Social Security
benefits of $4,422.40 for taxable year 2001. Form SSA-1099 for
taxable year 2001 also shows that there was a worker’s
compensation offset in the amount of $4,422.40. Petitioners did
not report any Social Security benefits on their joint Federal
income tax return for 2001.
On April 12, 2004, respondent issued to petitioners a notice
of deficiency that determined petitioners failed to include in
gross income for the taxable year 2001 the amount of $3,7592 as a
result of adjustments for taxable Social Security benefits under
section 86. Further, the determination resulted in computational
adjustments causing the disallowance of a portion of the
deduction claimed by petitioners for medical expenses.
2
Respondent calculated this amount as 85 percent of the
$4,422.40 in Social Security benefits for 2001.
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Discussion3
As previously stated, the issue before the Court is whether
certain worker’s compensation benefits petitioner received in
lieu of Social Security disability benefits are includable in
petitioners’ gross income for taxable year 2001 under section 86.
Petitioners maintain that since petitioner did not receive
an actual payment from the Social Security Administration during
2001 because of the offset of workmen’s compensation benefits
received in that year, it is unfair to include the offset amount
in their 2001 income. Respondent maintains that although
petitioners did not receive an actual payment from the Social
Security Administration during 2001, they must nevertheless
include the offset amount in their 2001 income under section
86(d)(3).
Gross income includes “all income from whatever source
derived” unless specifically excluded. Sec. 61(a). Generally,
gross income does not include “amounts received under workmen’s
compensation acts as compensation for personal injuries or
sickness”. Sec. 104(a)(1). Social Security benefits, however,
are included in gross income as provided by section 86.
3
We decide the issue in this case without regard to the
burden of proof. Accordingly, we need not decide whether the
general rule of sec. 7491(a)(1) is applicable in this case. See
Higbee v. Commissioner, 116 T.C. 438 (2001).
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Married taxpayers filing a joint return whose modified
adjusted gross income, plus one-half of their Social Security
benefits, exceeds $44,000 must include up to a maximum of 85
percent of their Social Security benefits in their gross income.
See sec. 86(a), (b), and (c).
Respondent determined that 85 percent of the Social Security
benefits petitioner received for 2001 is includable in
petitioners’ gross income. Petitioners do not dispute that
petitioner received worker’s compensation benefits in the amount
by which her Social Security benefits were offset. Petitioners,
however, argue that the Social Security Administration never paid
the benefits reported as worker’s compensation offset, and thus
those amounts should not be included in petitioners’ gross
income.
Section 86(d)(3) clearly provides that such offsets are
Social Security benefits for purposes of determining gross
income:
if * * * 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.
Section 86 was added to the Internal Revenue Code by the
Social Security Amendments of 1983, Pub. L. 98-21, sec. 121, 97
Stat. 80. The House report states in relevant part:
social security benefits potentially subject to tax will
include any workmen’s compensation whose receipt caused a
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reduction in social security disability benefits. For
example, if an individual were entitled to $10,000 of social
security disability benefits but received only $6,000
because of the receipt of $4,000 of workmen’s compensation
benefits, then for purposes of the provisions taxing social
security benefits, the individual will be considered to have
received $10,000 of social security benefits. [H. Rept. 98-
25, at 26 (1983).]
Petitioners seem to argue that section 104(a)(1) should in
effect “trump” section 86. However, the statutes must be read
together. Section 104(a)(1) provides the general rule that
worker’s compensation benefits are not includable in gross
income. Section 86(d)(3) provides the exception to this general
rule and states that the offset amount is included in income in
the same manner as a Social Security benefit. This has the
effect of equalizing the Federal tax treatment of Social Security
benefits available to various taxpayers who may or may not be
eligible to receive worker’s compensation benefits. See H. Rept.
98-25, supra at 26.
Petitioners also argue that the operation of section
86(d)(3) is unjust. This Court is not the proper place for this
argument. We cannot evaluate the fairness of the law but must
apply it as it is written; it is up to Congress to address
questions of fairness and to make improvements to the law.
Metzger Trust v. Commissioner, 76 T.C. 42, 59-60 (1981), affd.
693 F.2d 459 (5th Cir. 1982).
We have reviewed and found to be correct respondent’s
calculation of the portion of benefits includable in petitioners’
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gross income under section 86. Accordingly, we uphold
respondent’s determination that petitioners’ gross income for the
taxable year 2001 is increased by $3,759 as a result of
adjustments for taxable Social Security benefits under section
86.
Respondent’s computational adjustments to petitioner’s
claimed medical expenses will be decided by our holding on the
issue.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for respondent.