T.C. Summary Opinion 2010-19
UNITED STATES TAX COURT
NORMAN J. KELLEY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 22639-08S. Filed February 24, 2010.
Norman J. Kelley, pro se.
Denise A. DiLoreto, for respondent.
WHERRY, Judge: This case was heard pursuant to the
provisions of section 7463 of the Internal Revenue Code in effect
when the petition was filed.1 Pursuant to section 7463(b), the
decision to be entered is not reviewable by any other court, and
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code of 1986, as amended and in effect for
the tax year at issue. The Rule reference is to the Tax Court
Rules of Practice and Procedure.
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this opinion shall not be treated as precedent for any other
case.
Respondent determined that petitioner is liable for a $3,388
Federal income tax deficiency for his 2006 tax year. Petitioner
timely petitioned the Court to redetermine that deficiency. The
issue for decision is whether $13,566 (representing 85 percent of
the $15,960 in Social Security benefits that petitioner received
in 2006) is includable in petitioner’s 2006 gross income.
Background
Some of the facts have been stipulated, and the stipulated
facts and accompanying exhibits are hereby incorporated by
reference into our findings. At the time he filed his petition,
petitioner resided in West Virginia.
During 2006 petitioner received $15,960 in Social Security
benefits, which was reported to respondent on Form SSA-1099,
Social Security Benefit Statement. Petitioner filed a Form 1040,
U.S. Individual Income Tax Return, for the 2006 tax year but did
not report any “Taxable amount” from Social Security benefits.
On September 2, 2008, respondent sent petitioner a notice of
deficiency indicating that he was liable for a $3,388 Federal
income tax deficiency for the 2006 tax year. Petitioner, on
September 15, 2008, filed a timely petition with this Court. On
August 21, 2009, the parties filed a joint motion for leave to
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submit case under Rule 122 and a stipulation of facts. The
Court granted the motion and struck the case from the September
14, 2009, Charleston, West Virginia, trial session.
Discussion
Since 1983, section 86 has required some taxpayers to
include a portion of their Social Security benefits in their
gross income for Federal income tax purposes. Reimels v.
Commissioner, 123 T.C. 245, 247 (2004), affd. 436 F.3d 344 (2d
Cir. 2006). Before then, Social Security benefits had not been
taxed. Congress evidently believed that a change was necessary
to “shore up the solvency of the Social Security trust funds and
to treat ‘more nearly equally all forms of retirement and other
income that are designed to replace lost wages’.” Id. (quoting
S. Rept. 98-23, at 25 (1983), 1983-2 C.B. 326, 328). “[B]y
taxing only a portion of the benefits, Congress intended to allow
taxpayers some cost recovery for their contributions (i.e., for
the taxes they pay into the Social Security system).” Roberts v.
Commissioner, T.C. Memo. 1998-172, affd. without published
opinion 182 F.3d 927 (9th Cir. 1999).
The formula for determining the portion of Social Security
benefits includable in gross income is set forth in section 86.
Although somewhat complex, the formula provides that a single
taxpayer whose modified adjusted gross income plus one-half of
his or her Social Security benefits received during the taxable
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year exceeds an “adjusted base amount” of $34,000 must include 85
percent of the Social Security benefits in gross income. Sec.
86(a)(2), (c)(2).
Petitioner seems to make two arguments. First he asserts
that one-half of “the amount in * * * [his] social security is
* * * [his] investment/contribution” and that “since Social
Security is taxed through * * * [his] original contribution * * *
[i]f any of * * * [his Social Security] should be taxed, it
should at most be the employer’s contribution.” Petitioner also
argues that he was not required to include in gross income any
portion of his $15,960 Social Security benefits in 2006 because
all of the benefits were paid out of his contributions.
Petitioner asserts that his Social Security benefits should be
taxed only to the extent that the benefits he received exceed his
Social Security contributions.
As explained below, we are not persuaded by any of
petitioner’s arguments. When section 86 was enacted, Congress,
using the same logic as petitioner, set the maximum amount of
taxable Social Security benefits at only one-half of the benefits
received “in recognition of the fact the Social Security benefits
are partially financed by the after-tax contributions of
employees and self-employed individuals.” Roberts v.
Commissioner, supra (citing S. Rept. 98-23, supra at 26, 1983-2
C.B. at 328). However, in 1994 Congress amended section 86 to
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require that a taxpayer with a modified adjusted gross income
plus one-half of the Social Security benefits exceeding $34,000
(or $44,000 in the instance of a joint tax return) must include
85 percent of Social Security benefits in income. Omnibus Budget
Reconciliation Act of 1993, Pub. L. 103-66, sec. 13215, 107 Stat.
475.
Second, petitioner asserted that he was not required to
include in gross income any portion of his 2006 benefits because
all of the benefits were paid out of his contributions. Although
Congress initially concluded that Social Security benefits should
be treated like other retirement benefits and taxed to the extent
“‘they exceed a worker’s after-tax contributions’”, it ultimately
chose a method of taxation that differs from the manner in which
other retirement benefits are taxed. Roberts v. Commissioner,
supra (quoting S. Rept. 98-23, supra at 25, 1983-2 C.B. at 328).
This intentional legislative decision increased revenue,
increased productivity, and eliminated the complicated
recordkeeping requirements associated with annuities, which allow
taxpayers to exclude a share of their investment in the periodic
payments.
Underlying all of petitioner’s arguments is a question of
fairness. However, as we said in Roberts, this Court is not a
forum to judge legislation. “‘Normally, a legislative
classification will not be set aside if any state of facts
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rationally justifying it is demonstrated to or perceived by the
courts.’” Id. (quoting United States v. Md. Sav.-Share Ins.
Corp., 400 U.S. 4, 6 (1970)). Congress had a valid and rational
basis for the distinctions made in section 86. Roberts v.
Commissioner, supra.
Petitioner received $15,960 in Social Security benefits in
2006, and his modified adjusted gross income plus one-half of the
Social Security benefits received exceeded $34,000. Accordingly,
under section 86, petitioner is required to include 85 percent,
or $13,566, of the Social Security benefits in his 2006 gross
income.
For the foregoing reasons, we sustain respondent’s
determination of a deficiency for petitioner’s 2006 tax year.
The Court has considered all of petitioner’s contentions,
arguments, requests, and statements. To the extent not discussed
herein, we conclude that they are meritless, moot, or irrelevant.
To reflect the foregoing,
Decision will be entered
for respondent.