T.C. Summary Opinion 2006-196
UNITED STATES TAX COURT
THOMAS WAYNE AND ROSALIE GERALDINE KEENE, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 21153-05S. Filed December 27, 2006.
Thomas Wayne and Rosalie Geraldine Keene, pro se.
Brenda Fitzgerald, 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 petitioners’ Federal
income tax of $1,995 for their 2003 taxable year. The issue we
decide is whether certain disability benefits received by
petitioner Thomas Wayne Keene (petitioner) as workers’
compensation 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 Warner Robins, Georgia.
During 2003, petitioner received disability benefits from
the U.S. Department of Labor (DOL), Office of Workers’
Compensation Programs, for a back injury that petitioner suffered
on February 23, 1994. During 2003, petitioner also received
Social Security disability benefits from the Social Security
Administration (SSA). According to the SSA, petitioner’s primary
disability is “discogenic/degenerative disorder of the back” and
his secondary disability is “diabetes mellitus”.
The SSA reported to the Internal Revenue Service that
petitioner had received “Net Benefits for 2003" totaling $12,019,
of which $9,706 was paid by DOL as workers’ compensation
benefits. On the basis of a letter from the SSA, petitioner
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calculated that his taxable Social Security benefits for 2003
were $1,3761 and reported that amount on his 2003 tax return.
Respondent determined that petitioner’s taxable Social Security
benefits totaled $10,216.15, $8,840.15 greater than the amount
reported by petitioner.
Discussion
Petitioners contend, inter alia, that the Workers’
Compensation benefits petitioner received from DOL are not
taxable because they were not paid by the SSA.2 We disagree.
1
The SSA letter petitioner used to calculate his taxable
Social Security benefits states that petitioner’s monthly Social
Security benefits for 2003 would be $192.70, minus a $58.70
deduction for Medicare, resulting in $134 to be deposited in
petitioner’s bank account each month.
It is unclear how petitioner determined his taxable Social
Security benefits totaled $1,376, because $134 multiplied by 12
months equals $1,608. We note that $192.70 multiplied by 12
months equals $2,312.40, and that the difference between
petitioner’s $12,019 net Social Security benefits and the $9,706
paid by DOL is $2,313.
2
Petitioners also contend that the issue in the instant case
was previously decided in their favor in a Tax Court case at
docket No. 22889-04S regarding their 2002 taxable year.
Petitioners also rely on a letter from respondent’s Appeals
Office dated Mar. 8, 2005, implying that respondent wrongly
included petitioner’s workers’ compensation benefits in
determining petitioners’ Social Security benefits for 2003.
We note that respondent and petitioner signed an agreed
decision in the case at docket No. 22889-04S based on what
respondent now contends was an erroneous conclusion by
respondent’s Appeals Office. We also note that after
respondent’s Appeals Office realized the error contained in the
Mar. 8, 2005, letter to petitioners, respondent’s Appeals Office
sent another letter dated July 18, 2005, to petitioners informing
(continued...)
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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.3 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
benefits for tax years beginning after 1983. Since 1984, Social
Security disability benefits have been taxed in the same manner
2
(...continued)
them that the March 8 letter was incorrect and that petitioner’s
workers’ compensation benefits are includable in petitioner’s
Social Security benefits for 2003.
We agree with petitioners that respondent’s Appeals Office
has caused petitioners a great deal of confusion in the instant
case. Nonetheless, for reasons stated below, petitioner’s
workers’ compensation benefits are includable in gross income as
taxable Social Security benefits notwithstanding respondent’s
erroneous conclusions in the case at docket No. 22889-04S
regarding petitioners’ 2002 taxable year.
3
Petitioners have not challenged the formula provided in
sec. 86(a).
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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 from DOL as workers’ compensation
benefits are includable in gross income as taxable Social
Security disability benefits.
To reflect the foregoing,
Decision will be entered
for respondent.