T.C. Summary Opinion 2006-181
UNITED STATES TAX COURT
JOE W. JACOBS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 16339-05S. Filed November 6, 2006.
Joe W. Jacobs, pro se.
Shannon Edelstone, for respondent.
DEAN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463. Unless otherwise indicated, all
section references are to the Internal Revenue Code in effect for
the year in issue, and all 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 for 2003 a deficiency in petitioner
and Ivy D. Jacobs’s (Mrs. Jacobs) Federal income tax of $878.
The sole issue for decision is whether Social Security benefits
received by petitioner and Mrs. Jacobs during 2003 are includable
in gross income under section 86(a).
Background
The stipulation of facts and the exhibits received into
evidence are incorporated herein by reference. At the time the
petition in this case was filed, petitioner resided in Oakland,
California.
Petitioner and Mrs. Jacobs, now deceased, jointly filed for
2003, Form 1040, U.S. Individual Income Tax Return, reporting
Social Security benefits of zero and adjusted gross income of
$36,655.39. Mrs. Jacobs died on June 3, 2004.
On March 28, 2005, respondent issued to petitioner and Mrs.
Jacobs a notice known as a CP2000, or Revenue Agent Report (RAR).
The RAR notified petitioner and Mrs. Jacobs that they failed to
include in their gross income for 2003, Social Security benefits
of $2,556 and $9,908 received by petitioner and Mrs. Jacobs,
respectively, during that year. Petitioner made a Social
Security repayment of $169 in 2003. The RAR also indicated, as a
computational adjustment, that the proposed changes to their
gross income would reduce the amount of medical expenses allowed
as an itemized deduction on Schedule A.
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On June 20, 2005, respondent issued to petitioner and Mrs.
Jacobs a statutory notice of deficiency for 2003.
Discussion
The Commissioner’s determinations are presumed correct, and
generally taxpayers bear the burden of proving otherwise. Rule
142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933).1
Petitioner argues that the Social Security benefits received
by Mrs. Jacobs in 2003 are excludable from gross income because
they were disability payments. Even if Mrs. Jacobs had received
Social Security benefits by reason of a disability, the benefits
might be taxable under section 86(a).
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 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 and are
subject to tax under section 86. Reimels v. Commissioner, 123
T.C. 245, 247 (2004), affd. 436 F.3d 344 (2d Cir. 2006); Joseph
1
Since this case is decided by applying the law to the
undisputed facts, sec. 7491 is inapplicable.
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v. Commissioner, T.C. Memo. 2003-19; Thomas v. Commissioner, T.C.
Memo. 2001-120.
Section 61(a) provides that gross income includes all income
from whatever source derived, unless excludable by a specific
provision of the Code. Section 86 requires the inclusion of a
portion of Social Security benefits in gross income if the
taxpayer’s adjusted gross income, with certain modifications not
relevant here, plus one-half of the Social Security benefits
received, exceeds a specified base amount. Sec. 86(b). For
taxpayers filing a joint return, the base amount is $32,000.
Sec. 86(c)(1)(B).
Petitioner’s modified adjusted gross income was $36,655.39.
One-half of the total Social Security benefits received was
$6,147.50 (($12,464 - repayment of $169)/2). The amount
determined under section 86(b)(1)(A), $42,802.89 ($36,655.39 +
$6,147.50), exceeds the base amount of $32,000. Therefore, a
portion of petitioner’s Social Security benefits is taxable under
section 86(a).
Section 86(a) provides that gross income includes the lesser
of: (1) One-half of the Social Security benefits received during
the year, or (2) one-half of the excess described in section
86(b)(1). The includable percentage is increased, however, if
the amount determined under section 86(b)(1)(A) exceeds the
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adjusted base amount of $44,000, in the case of a joint return.
See sec. 86(a)(2), (c)(2)(B).
The increased percentage is not applicable because
petitioner did not exceed the threshold for the adjusted base
amount. One-half of the excess described in section 86(b)(1) was
$5,401.45 (($42,802.89 - $32,000)/2), which is less than one-half
of the total Social Security benefits received.
Accordingly, the Court sustains respondent’s determination
that $5,401 of the Social Security benefits received by
petitioner and Mrs. Jacobs in 2003 is includable in their gross
income for that year.
To reflect the foregoing,
Decision will be entered
for respondent.