T.C. Summary Opinion 2006-101
UNITED STATES TAX COURT
RANDY GENE AND KATHIE J. SHREVE, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 1177-05S. Filed July 10, 2006.
Randy Gene and Kathie J. Shreve, pro se.
Robert W. Dillard, for respondent.
WELLS, Judge: This case was heard pursuant to the
provisions of section 7463 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, all section references are to the Internal
Revenue Code, as amended.
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Respondent determined a deficiency in Federal income tax for
petitioner’s 2002 taxable year. After concessions,1 the sole
issue for decision is whether certain disability benefits
received by petitioner Randy Gene Shreve (petitioner) under a
workmen’s compensation act are includable in gross income
pursuant to section 86(a).
Background
Some of the facts and certain exhibits have been stipulated.
The parties’ stipulations of fact are incorporated in this
opinion by reference and are found as facts in the instant case.
At the time of filing the petition in the instant case,
petitioners resided in Fernandina Beach, Florida. Petitioner is
disabled and receives disability benefits from the Social
Security Administration and under a workmen’s compensation act
(workmen’s compensation act). Petitioners filed their 2002 tax
return but did not report as income any Social Security
disability benefits. However, based on a Form SSA-1099, Social
Security Benefit Statement, respondent determined that petitioner
had received $7,537 in taxable disability benefits during 2002,
of which the Social Security Administration directly paid
petitioner $1,512 and the remainder was received under a
workmen’s compensation act. In the notice of deficiency sent to
1
At trial, petitioners conceded that they owe tax on certain
interest income and a State tax refund.
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petitioner, respondent determined that petitioner’s disability
benefits were taxable. Petitioners timely petitioned this Court.
Discussion
Petitioner contends that the disability benefits petitioner
received under a workmen’s compensation act are not taxable
because they were not paid by the Social Security Administration.
We disagree.
Gross income includes all income from whatever source
derived unless excluded by a provision of the Internal Revenue
Code. Sec. 61(a). Section 86(a) provides that gross income
includes Social Security benefits in an amount equal to a
prescribed formula.2 Social Security benefits mean any amount
received by a taxpayer by reason of entitlement to a monthly
benefit under title II of the Social Security Act. Sec.
86(d)(1)(A). Title II of the Social Security Act provides for
disability benefits. See 42 U.S.C. secs. 401-434 (2000).
Prior to 1984, disability payments received by a taxpayer
who retired due to a permanent disability were excluded from
gross income pursuant to section 105(d). The Social Security
Amendments of 1983, Pub. L. 98-21, sec. 122(b), 97 Stat. 87,
repealed section 105(d) and the limited exclusion of disability
2
Petitioners have not challenged the formula provided in
sec. 86(a).
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benefits for tax years beginning after 1983. Since 1984, Social
Security disability benefits have been taxed in the same manner
as other Social Security benefits and subject to tax pursuant to
section 86. Sec. 86(d)(1); Thomas v. Commissioner, T.C. Memo.
2001-120 (and cases cited therein). A reduction of Social
Security disability benefits due to the receipt of benefits under
a workmen’s compensation act does not reduce the total amount of
taxable Social Security benefits. Sec. 86(d)(3); Mikalonis v.
Commissioner, T.C. Memo. 2000-281. Accordingly, we hold the
amounts petitioner received under the workmen’s compensation act
are includable in their gross income as taxable Social Security
disability benefits.
To reflect the foregoing,
Decision will be entered
for respondent.