T.C. Summary Opinion 2015-29
UNITED STATES TAX COURT
TONY CARRANCHO AND LINDA CARRANCHO, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 27067-13S. Filed April 20, 2015.
Tony Carrancho and Linda Carrancho, pro sese.
Nicholas Rosado and Michael Skeen, for respondent.
SUMMARY OPINION
PANUTHOS, Chief Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in effect when the
petition was filed. Pursuant to section 7463(b), the decision to be entered is not
reviewable by any other court, and this opinion shall not be treated as precedent
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for any other case. 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, unless otherwise indicated.
In a notice of deficiency dated August 19, 2013, respondent determined a
deficiency in petitioners’ 2011 Federal income tax of $4,811. Respondent
determined that petitioners failed to report as income $32,827 in Social Security
benefits received in 2011.
The issue for decision is whether petitioners are required to include certain
Social Security benefits in their gross income.
Background
Some of the facts have been stipulated and are so found. The stipulation of
facts and the attached exhibits are incorporated herein by reference. Petitioners
resided in California when their petition was filed.
Tony Carrancho (petitioner) became disabled on June 20, 2003. On
September 2, 2009, petitioner filed for monthly disability benefits with the Social
Security Administration. In September 2011, the Social Security Administration
determined that petitioner became disabled on June 20, 2003, and that he was
entitled to Social Security benefits beginning in September 2008. Petitioner’s
Social Security benefits were reduced by, or offset by, his workers’ compensation
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payments.1 Petitioner received $1,790.50 in 2011 representing the net Social
Security benefit allocable from December 2008 through August 2011. The
Internal Revenue Service received a Form SSA-1099, Social Security Benefit
Statement, reporting that petitioner received $54,489 in Social Security benefits
during the 2011 taxable year. The Form SSA-1099 reflects a workers’
compensation offset of $51,948. Most of the $54,489 was a lump-sum payment of
Social Security benefits attributable to prior years. Petitioners reported a payment
of $1,791 on their Form 1040, U.S. Individual Income Tax Return, for 2011 as
Social Security benefits received and reported $1,522 as the taxable amount.
Respondent determined that the taxable amount of Social Security benefits
received was $34,349. The $32,827 adjustment is the difference between the
taxable amount that respondent calculated and the $1,522 petitioners reported as
taxable on their return.
Discussion
In general, the Commissioner’s determination set forth in a notice of
deficiency is presumed correct, and the taxpayer bears the burden of proving
otherwise. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). In cases
1
The record does not reflect the amount of workers’ compensation payments
that petitioner received during the period 2003-11.
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involving unreported income, this Court has recognized an exception to this rule
where the Commissioner introduces no substantive evidence and relies solely on
the presumption of correctness. Jackson v. Commissioner, 73 T.C. 394, 401
(1979). This exception is limited and does not apply where the Commissioner has
provided a minimal evidentiary foundation. Petzoldt v. Commissioner, 92 T.C.
661, 687-688 (1989). Because we decide the factual issues in the instant case on
the preponderance of the evidence, the allocation of the burden of proof is
immaterial. See Knudsen v. Commissioner, 131 T.C. 185, 189 (2008).
Workers’ compensation is generally excludable from a taxpayer’s gross
income. Sec. 104(a)(1). In contrast, Social Security benefits, including Social
Security disability benefits, may be includable in a taxpayer’s gross income
pursuant to a statutory formula that takes into account a number of factors,
including the amount of Social Security benefits received, the taxpayer’s other
income, and the taxpayer’s filing status. Sec. 86. If the amount of Social Security
benefits that a taxpayer receives is reduced because of the receipt of workers’
compensation benefits, then the amount of the workers’ compensation benefits
that causes the reduction is treated as though it were a Social Security benefit.
Sec. 86(d)(3); Moore v. Commissioner, T.C. Memo. 2012-249, at *4-*5. The
workers’ compensation offset is included in the Social Security benefits that
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petitioner received in 2011. Therefore, we conclude that petitioner received
$34,349 in taxable Social Security benefits in 2011.
Taxpayers may make an election with respect to the amount of a lump-sum
payment of Social Security benefits received during a taxable year in which the
portion of the payment is attributable to previous years. Sec. 86(e); Brady v.
Commissioner, T.C. Memo. 2013-1, at *6. This election provides an alternate
method for applying the statutory formula to determine the amount of Social
Security benefits includable in the taxpayer’s income. See sec. 86(e). Because
petitioner received a lump-sum payment of Social Security benefits during 2011
that was in part attributable to 2008, 2009, and 2010, they were eligible to make a
section 86(e) election on their tax return. Petitioners did not make a section 86(e)
election on their 2011 tax return.2
When petitioner applied for Social Security benefits, part of his workers’
compensation benefits, which were otherwise excludable from gross income, were
treated as Social Security benefits pursuant to the provisions of section 86(d)(3).
This recharacterization caused petitioners’ tax to increase by more than the amount
2
Respondent provided a computation showing that petitioners would not
benefit from a sec. 86(e) election. Petitioners did not provide any such
computation. We presume that petitioners would not benefit from a sec. 86(e)
election.
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of increase in benefits received as a result of petitioner’s qualifying for Social
Security benefits.
While the result appears harsh, our role is to enforce the laws as written and
interpreted. As the Supreme Court of the United States has instructed, the role of
the courts is to apply the statute as written. Sandifer v. U.S. Steel Corp., 571 U.S.
___, ___, 134 S. Ct. 870, 878 (2014); see also McCarthy v. Commissioner, T.C.
Memo. 2015-50, at *9 (and the cases cited thereat).
We have considered the parties’ arguments and, to the extent not discussed
herein, we conclude the arguments to be irrelevant, moot, or without merit.
To reflect the foregoing,
Decision will be entered
for respondent.