T.C. Summary Opinion 2006-18
UNITED STATES TAX COURT
TONY G. AND ROBERTA A. MONTGOMERY, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 3564-04S. Filed February 6, 2006.
Tony G. Montgomery, pro se.
Michael W. Bitner, 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.
This case is decided without regard to the burden of proof. In
some instances, sec. 7491 shifts the burden of proof to
respondent. Since this case involves only a question of law,
sec. 7491 is not applicable here.
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Respondent determined a deficiency of $1,586 in petitioners’
Federal income tax for the year 2001.
The sole issue for decision is whether Social Security
benefits received by Tony G. Montgomery (petitioner) during 2001
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 Marion, Illinois.
Petitioner was a career employee of The Kroger Co. (Kroger),
a nationwide super market chain, having worked for Kroger for 28
years. He was employed in a managerial capacity overseeing
approximately 80 Kroger stores in southern Indiana and southern
Illinois. His duties required visiting each store to make sure
that the merchandising policies of the company were being
followed. In effect, he served as a liaison between the
individual stores and the company headquarters.
Petitioner was seriously injured during the course of his
employment sometime during 1990. While he was at a store at
Mercury, Illinois, in connection with a remodeling of the store,
a customer accidentally rammed him with a shopping cart. The
accident, as it turned out, caused petitioner to suffer serious
spinal injuries. Although petitioner initially was not disabled,
and he continued working, he did so with pain, which, over
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several years, progressed in intensity. He had several back
surgeries and, finally, was unable to work. He was retired for
disability in May 1999.
During his career with Kroger, petitioner availed himself of
purchasing disability insurance that would pay benefits to
employees injured or otherwise disabled in connection with their
employment. Petitioner’s condition warranted benefits under this
insurance. Upon his retirement, petitioner began receiving these
benefits. The parties agree that these benefits were not
includable in petitioner’s gross income. Petitioner also
received workman’s compensation benefits, which are not at issue
in this case. Under the terms of the insurance policy at issue
here, the benefits terminated whenever the employee became
entitled to Social Security benefits.
Under the terms of the employer-sponsored insurance,
petitioner received benefits from the date of his retirement from
1999 up to the year 2001. The terms of that policy, however,
required the employee-beneficiary to apply for disability Social
Security benefits, and, if the employee were found eligible for
disability Social Security, the benefits of the employer-
sponsored insurance would cease.
As required, petitioner applied for disability Social
Security benefits, and he was determined to be totally and
permanently disabled. The issue in this case involves the
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disability Social Security benefits petitioner received during
2001. Petitioner’s position is that the disability Social
Security benefits are not includable in his income because these
benefits are merely a continuance of the employer-sponsored
insurance benefit and, since those latter benefits are not
taxable, that exempt characteristic extends or carries over to
the disability Social Security benefits. Petitioner did not
include these benefits as income on his 2001 Federal income tax
return. Of the $41,685 in Social Security benefits he received
during 2001, respondent determined that $9,511 of these benefits,
pursuant to section 86(a), was includable in income.
Prior to 1984, certain payments made in lieu of wages to an
employee who was retired by reason of permanent and total
disability were excludable from the employee’s gross income under
section 105(d). However, the Social Security Act Amendments of
1983, Pub. L. 98-21, sec. 122(b), 97 Stat. 87, repealed the
limited exclusion of disability payments provided by section
105(d), effective with respect to taxable years beginning after
1983. Since 1984, Social Security disability benefits have been
treated in the same manner as other Social Security benefits.
Sec. 86(d)(1).2 These benefits are subject to tax under the
2
Sec. 86(d)(1) defines “Social Security benefit” as any
amount received by reason of entitlement to a monthly benefit
under title II of the Social Security Act, which includes
(continued...)
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provisions of section 86. Maki v. Commissioner, T.C. Memo. 1996-
209; see Ernzen v. United States, 875 F.2d 228 (9th Cir. 1989);
Wallers v. United States, 847 F.2d 1279 (7th Cir. 1988).
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 gross income includes Social Security
benefits in an amount equal to a prescribed formula therein
provided. Petitioner has not challenged the computation by
respondent under this formula.
The Court rejects petitioner’s contention that disability
Social Security benefits constitute accident or health insurance
under section 104(a)(3), or that the Social Security benefits
come under the “umbrella” of the tax-exempt benefits he was
receiving from the employer-sponsored insurance. The repeal by
Congress of former section 105(d), which specifically provided
for the exclusion from income of certain disability benefits and
the enactment of section 86, with the section 86(d)(1)(A)
provision that the term “Social Security benefits” includes
benefits received under title II of the Social Security Act
(which includes disability Social Security benefits), indicates
quite clearly to the Court that Congress did not intend that
2
(...continued)
disability insurance benefit payments.
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disability Social Security benefits could be construed as an
accident or health plan under section 104(a)(3), or that
disability Social Security benefits are otherwise excludable from
gross income. The Court, therefore, rejects petitioner’s
contention on this issue. Respondent is sustained.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for respondent.