T.C. Memo. 2007-217
UNITED STATES TAX COURT
THEODORE MAJOR GREEN AND JACQUELINE GREEN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5216-06. Filed August 7, 2007.
Theodore Major and Jacqueline Green, pro sese.
Gavin L. Greene, for respondent.
MEMORANDUM OPINION
SWIFT, Judge: This matter is before us on respondent’s
motion for summary judgment under Rule 121.
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for 2003, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
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The issues for decision are: (1) Whether taxable Social
Security benefits petitioner Jacqueline Green received in 2003
should be treated as nontaxable workmen’s compensation benefits;
and (2) whether petitioners may deduct from 2003 income $11,068
relating to a $166,013 damage award judgment that Jacqueline
Green never received and that has now been discharged in
bankruptcy.
Hereinafter, references to petitioner in the singular are to
petitioner Jacqueline Green.
Background
At the time the petition was filed, petitioners resided in
Moorpark, California. From 1985 to September 19, 2005, Mr. Green
worked as a tax auditor for respondent.
Petitioner’s Social Security Benefits
Prior to November 12, 1989, petitioner worked on a General
Motors assembly line.
In November of 1989 petitioner was injured while shopping
for groceries. This was unrelated to her employment at General
Motors Corporation (General Motors). The injury was caused by a
shopping cart under the control of another person. Injuries
petitioner sustained therefrom apparently prevented petitioner
from further assembly line work at General Motors. Petitioner
continued to work for General Motors but as a decal assembler.
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On November 7, 1990, petitioner filed a lawsuit for personal
injury damages against the person who was pushing the shopping
cart.
On or about August 27, 1991, petitioner was involved in
another accident, this time while at work at General Motors, as a
result of which petitioner sustained additional injuries.
Petitioner’s injuries required surgery and left her unable to
work.
On August 6, 1992, petitioner filed a claim for Social
Security disability benefits, and on December 17, 1993,
petitioner began receiving Social Security disability benefits.
In addition to her claim for Social Security disability
benefits, petitioner filed a claim for California workmen’s
compensation benefits. The record does not reflect that
petitioner ever received any benefits under her workmen’s
compensation claim.
On November 12, 1996, petitioner obtained a $166,013 default
judgment for personal injury damages against the person who was
pushing the shopping cart that injured petitioner in 1989.
On or about March 14, 1997, in a bankruptcy proceeding, the
person against whom petitioner obtained the default judgment was
discharged of liability to pay the $166,013 judgment petitioner
had obtained, and petitioner never collected anything on the
judgment. Petitioner never included any portion of the $166,013
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judgment in taxable income, and the record does not establish
that petitioner had any tax basis in the uncollected judgment.
On their 1997 joint Federal income tax return filed with
respondent, petitioners reported as taxable $5,789 of the Social
Security benefits petitioner received in 1997, and petitioners
claimed a $11,068 casualty loss deduction relating to the above
$166,013 uncollected judgment. Petitioners also attached to
their 1997 tax return a statement that they intended to deduct
the balance of the $154,946 uncollected judgment over the course
of the next 15 years –- $11,068 in each year -– as a loss
carryforward under section 172.
For 2003, the year at issue herein, petitioners filed a
joint Federal income tax return, reported thereon $6,604 as the
taxable portion of the Social Security benefits petitioner
received, and claimed the $11,068 loss carryforward mentioned
above relating to petitioner’s 1996 $166,013 uncollected
judgment.
After an audit of petitioners’ 2003 Federal income tax
return, on December 5, 2005, respondent mailed to petitioners a
notice of deficiency reflecting a $437 tax deficiency for 2003
based on a recalculation of the portion of Social Security
disability benefits petitioner received in 2003 that was taxable.
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On March 4, 2006, petitioners timely mailed and postmarked a
petition disputing the $437 tax deficiency respondent had
determined on the ground that the entire amount petitioner
received in 2003 as Social Security disability benefits should be
treated as nontaxable workmen’s compensation benefits under
section 104(a)(1).
On June 2, 2006, respondent filed an answer alleging an
increase to $2,498 in the tax deficiency determined against
petitioners for 2003 on the ground that the $11,068 loss
deduction petitioners claimed relating to petitioner’s
uncollected judgment was not allowable. Based on the
disallowance of the $11,068 loss deduction and the resulting
increase in petitioners’ income, respondent also recalculated and
increased the portion of the Social Security disability benefits
petitioner received in 2003 that was taxable.
Also in his answer, respondent asserted a $499 section
6662(a) accuracy-related penalty against petitioners for 2003.
On July 19, 2006, respondent filed under Rule 37(c) a Motion
for Entry of Order That Undenied Allegations in Answer Be Deemed
Admitted. Petitioners did not file a reply to respondent’s
answer or a response to respondent’s Rule 37(c) motion, and on
September 20, 2006, we granted respondent’s Rule 37(c) motion.
On October 23, 2006, respondent filed the instant motion for
summary judgment.
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Discussion
Summary Judgment
When no material fact remains at issue, we may grant summary
judgment as a matter of law. Rule 121(b); Fla. Country Clubs,
Inc. v. Commissioner, 122 T.C. 73, 75-76 (2004), affd. on other
grounds 404 F.3d 1291 (11th Cir. 2005). Because of the parties’
admissions and deemed admissions as to material facts, no
material fact remains at issue.
Social Security Benefits
Generally, taxpayers who file a joint return and receive
Social Security benefits and whose modified adjusted gross income
plus half of Social Security benefits received in a year exceeds
$32,000 are to include in taxable income a portion of the Social
Security benefits received in a year. Sec. 86(a), (b), and
(c)(1)(B).
Generally, Social Security disability benefits are taxed in
the same manner as Social Security benefits. Sec. 86(d)(1);
Joseph v. Commissioner, T.C. Memo. 2003-19.
Benefits received under a workmen’s compensation statute or
other statute authorizing benefits in the nature of workmen’s
compensation may not be included in income. See sec. 104(a)(1);
McDowell v. Commissioner, T.C. Memo. 1997-500.
A statute providing for payment of benefits that are not
related to an injury incurred in the course of employment is not
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considered to be a statute in the nature of workmen’s
compensation. Take v. Commissioner, 804 F.2d 553, 557 (9th Cir.
1986), affg. 82 T.C. 630 (1984), and T.C. Memo. 1985-388.
The Social Security Act provides for disability benefits for
an injury regardless of whether the injury occurred in the course
of employment. See 42 U.S.C. sec. 423(d)(1)(A) (2000).
Petitioner’s Social Security disability benefits received in
2003 were provided to petitioner under the Social Security Act.
Because the Social Security Act is not a statute in the nature of
workmen’s compensation, petitioners must include in gross income
for 2003 $11,227 of the $13,208 in Social Security disability
benefits that petitioner received in 2003, as per the calculation
provided under section 86.
Section 165 Deduction
Section 165(c) provides a deduction from income for
taxpayers who incur an uncompensated loss relating to a trade or
business, to a transaction entered into for profit, or to a
casualty resulting in an uncompensated loss of property.
Petitioner’s $166,013 uncollected judgment involving the
shopping cart was personal in nature and had no connection with
petitioner’s trade or business or with a transaction entered into
for profit. Petitioner may not deduct under section 165(c)(1) or
(2) any portion of petitioner’s uncollected judgment.
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Further, the amount of a casualty loss deduction under
section 165(c)(3), which applies to property, is limited to the
lesser of the reduction in fair market value as a result of the
casualty or the property’s adjusted tax basis. Godwin v.
Commissioner, T.C. Memo. 2003-289, affd. 132 Fed. Appx. 785 (11th
Cir. 2005); sec. 1.165-7(b)(1), Income Tax Regs.
Generally, adjusted basis refers to the amount paid for
property increased and decreased by various adjustments such as
cost of improvements and depreciation. Secs. 165(b), 1011(a),
1016; secs. 1.1011-1, 1-1012-1(a), Income Tax Regs.
The above tax basis limitation set forth in the regulations
prevents petitioners herein from obtaining a casualty loss
deduction relating to petitioner’s uncollected judgment.
Petitioner did not include any portion of the $166,013
uncollected judgment in income and did not establish any tax
basis therein. No section 165(c)(3) loss deduction is allowable
with respect thereto.
In consolidated docket Nos. 4970-05 and 2475-04, petitioners
litigated before us for 2000 and 2001 the same issues raised
herein. We held that petitioner’s Social Security disability
benefits are taxable and that petitioners may not deduct under
section 165(c)(1) or (2) any portion of the $166,013 uncollected
judgment. See Green v. Commissioner, T.C. Memo. 2006-39.
Petitioners’ appeal thereof is currently pending in the U.S.
Court of Appeals for the Ninth Circuit.
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Accuracy-Related Penalty
Under sections 6662(a) and (b)(1), a taxpayer who has an
underpayment of tax may be liable for a penalty of 20 percent of
the underpayment of tax attributable to negligence or disregard
of the Federal income tax rules or regulations.
“[D]isregard of rules and regulations” includes careless,
reckless, or intentional disregard of rules and regulations.
Sec. 6662(c).
Respondent bears the burden of proof in connection with the
section 6662(a) penalty. Rule 142(a). Respondent has met his
burden of proof.
In light of Mr. Green’s work as a tax auditor for respondent
and in light of the relatively straightforward adjustments we
sustain herein, we sustain respondent’s imposition of the $499
accuracy-related penalty.
For the reasons stated, we shall grant respondent’s motion
for summary judgment.
An appropriate order and
decision will be entered for
respondent.