Thompson v. Comm'r , 2016 Tax Ct. Summary LEXIS 21 ( 2016 )

T.C. Summary Opinion 2016-20
UNITED STATES TAX COURT
JOHN THOMPSON, JR., AND DESREE THOMPSON, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 3094-14S. Filed May 12, 2016.
John Thompson, Jr., and Desree Thompson, pro sese.
Paul W. Isherwood, Peter R. Hochman, and John Chinnapongse, for
respondent.
SUMMARY OPINION
ASHFORD, 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
1
Unless otherwise indicated, all section references are to the Internal
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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 for any other case.
Respondent determined a deficiency of $7,147 in petitioners’ Federal
income tax and an accuracy-related penalty pursuant to section 6662(a) of $1,429
for the 2011 taxable year. After concessions,2 the issue for decision is whether,
pursuant to section 86(d)(3), petitioners had taxable Social Security income of
$30,519 for 2011 as a result of the worker’s compensation payments that
petitioner John Thompson, Jr., received during that year. We hold that they did.
Background
Some of the facts have been stipulated and are so found. The stipulation of
facts and the attached exhibits are incorporated herein by this reference.
Petitioners resided in California at the time they filed their petition with the Court.
Hereafter, references to petitioner in the singular shall denote John Thompson, Jr.
1
(...continued)
Revenue Code in effect for the year at issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure. Monetary amounts are rounded to the
nearest dollar.
2
Petitioners failed to address in their pleadings and at trial respondent’s
determination that they received income of $3,148 from cancellation of
indebtedness. We thus deem petitioners to have conceded this issue. See Rule
34(b)(4). Respondent conceded the accuracy-related penalty in its entirety at trial.
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In 2009 petitioner suffered an injury while performing services as a postal
worker for the U.S. Postal Service, which necessitated several surgeries and
resulted in his temporary inability to work. Petitioner received worker’s
compensation benefits for this injury under the Federal Employees Compensation
Act, 5 U.S.C. secs. 8101-8193 (2012), through the Department of Labor Office of
Workers’ Compensation Programs from July 19, 2009 to December 23, 2013.
On February 14, 2011, petitioner applied to the Social Security
Administration (SSA) for Supplemental Security Income (SSI) disability benefits.
In a notice of disapproved claim dated March 10, 2011, SSA initially denied his
application because he had “too much income to be eligible for SSI”. However,
three months later, SSA approved his application for disability benefits, effective
February 2010, in a notice of award dated June 5, 2011. The notice of award
further states:
We have to consider workers’ compensation and/or public disability
payments when we figure a Social Security benefit. The following
will explain how these payments affect Social Security benefits. For
more information, please read the enclosed pamphlet, “How Workers’
Compensation and Other Disability Payments May Affect Your
Social Security Benefit.”
The pamphlet explains how we reduce your Social Security disability
checks if the money which you would receive from Social Security
and workers’ compensation payments add up to more than 80 percent
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of your monthly average current earnings. We found that 80 percent
of your average current earnings is $3,457.60.
We have to take into account your workers’ compensation payment of
$3,794.60 when we figure your Social Security benefits. Because you
receive this payment, we are withholding the benefits you are due.
We are withholding your monthly Social Security checks beginning
February 2010, which is the first month when you were entitled to
both Social Security disability benefits and workers’ compensation
payments.
Petitioner never actually received SSI disability benefits in 2011.
Nevertheless, SSA issued petitioner a Form SSA-1099, Social Security Benefit
Statement, which reflected benefits paid in 2011 of $35,905 attributable to
“Workers’ compensation offset”. Petitioners did not report any of this amount on
their 2011 Form 1040, U.S. Individual Income Tax Return.
Respondent determined that $30,519 (or 85%) of the worker’s
compensation offset reported on petitioner’s Form SSA-1099 should have been
included as taxable Social Security income.3 The notice of deficiency mailed to
petitioners on December 2, 2013, reflects that determination. Petitioners timely
petitioned this Court disputing respondent’s determination, contending that (1)
3
Married taxpayers filing a joint return whose modified adjusted gross
income, plus one-half of their Social Security benefits, exceeds $44,000 must
include up to a maximum of 85% of their Social Security benefits in their gross
income. See sec. 86(a), (b), and (c).
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SSA never paid petitioner the reported SSI disability benefits; (2) Social Security
benefits are not a component of worker’s compensation benefits; and (3) the
worker’s compensation benefits petitioner received from the Department of Labor
are otherwise not taxable.
Discussion
Gross income includes “all income from whatever source derived”, unless
specifically excluded. Sec. 61(a). Generally, gross income does not include
“amounts received under workmen’s compensation acts as compensation for
personal injuries or sickness”. Sec. 104(a)(1). However, section 86 provides for
the inclusion of Social Security benefits in gross income and defines those benefits
as any amount received by the taxpayer by reason of entitlement to a monthly
benefit under the Social Security Act. Sec. 86(d)(1)(A).
In addition, section 86(d)(3) provides that where a taxpayer receives less in
Social Security benefits because he is instead receiving worker’s compensation
benefits, then the amount of worker’s compensation benefits that causes the
reduction (the so-called offset amount) is treated as though it were a Social
Security benefit for purposes of determining gross income. In other words,
taxable Social Security benefits include the amount of worker’s compensation
payments to the extent that they reduce, or offset, the total Social Security benefits
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to which the recipient is entitled; such offsets do not reduce the taxable amount of
Social Security benefits despite SSA not actually paying such benefits. This result
was specifically contemplated by Congress. See, e.g., Moore v. Commissioner,
T.C. Memo. 2012-249; Mikalonis v. Commissioner, T.C. Memo. 2000-281; Willis
v. Commissioner, T.C. Memo. 1997-290.
Section 86(d) is unambiguous, and its application to the undisputed facts of
this case is clear. Petitioners stipulated that during 2011, petitioner received
worker’s compensation benefits and that the SSI disability benefits that he was
otherwise entitled to receive in 2011 were entirely offset on account of petitioner’s
receipt, since July 2009, of worker’s compensation benefits. We acknowledge that
if petitioner had not applied to SSA for SSI disability benefits, then petitioners
would not find themselves in the situation they are in now. Petitioners’ frustration
is thus understandable, but our role is to apply the tax laws as written. See Eanes
v. Commissioner, 85 T.C. 168, 171 (1985).
Accordingly, pursuant to section 86(d)(3), we sustain respondent’s
determination that for 2011 petitioners had $30,519 of taxable Social Security
income.
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To reflect the foregoing,
Decision will be entered for
respondent as to the deficiency and for
petitioners as to the accuracy-related
penalty under section 6662(a).