Dovid & Marcia L. Goldfarb v. Comm'r

T.C. Summary Opinion 2007-41
UNITED STATES TAX COURT
DOVID AND MARCIA L. GOLDFARB, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 21305-05S. Filed March 13, 2007.
Dovid and Marcia L. Goldfarb, pro sese.
Miriam C. Dillard and Jeffrey S. Luechtefeld, for
respondent.
PANUTHOS, Chief Special Trial Judge: This case was heard
pursuant to the provisions of section 7463 of the Internal
Revenue Code 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, subsequent section references are to the Internal
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Revenue Code in effect for the year in issue, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
Respondent determined a $2,053 deficiency in petitioners’
2003 Federal income tax. The issues for decision are: (1)
Whether Social Security disability benefits received by
petitioner Marcia Goldfarb are taxable, and (2) whether
respondent is estopped from determining a deficiency against
petitioners with respect to the benefits.1
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and attached exhibits are incorporated
herein by this reference. At the time the petition was filed,
petitioners resided in Wesley Chapel, Florida. Unless otherwise
indicated, references to petitioner are to Marcia Goldfarb.
Petitioner formerly worked for the Montgomery County,
Maryland, police department. In 1998, petitioner retired due to
a work-related injury that left her disabled and began receiving
Social Security disability benefits. In 2003, petitioner
received $13,524 of disability benefits from the Social Security
Administration.
Petitioners filed a joint 2003 Federal income tax return
reporting $76,633 of adjusted gross income. This amount did not
1
Petitioners filed a Motion for Summary Judgment on Dec. 5,
2006. For the reasons discussed infra, we shall deny
petitioners’ motion.
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include the $13,524 of Social Security benefits that petitioner
received. Respondent issued petitioners a notice of deficiency
in August 2005. Respondent determined that $11,495 of the
benefits was taxable, representing 85 percent of the amount
received.2
Discussion
In general, the Commissioner’s determinations set forth in a
notice of deficiency are presumed correct, and the taxpayer bears
the burden of showing that the determinations are in error. Rule
142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Pursuant
to section 7491(a), the burden of proof as to factual matters
shifts to the Commissioner under certain circumstances. Because
we decide this case without regard to the burden of proof, we
need not decide whether section 7491(a) applies.
1. Social Security Benefits
Section 86 requires the inclusion in gross income of up to
85 percent of Social Security benefits received. Reimels v.
Commissioner, 123 T.C. 245, 247-248 (2004), affd. 436 F.3d 344
(2d Cir. 2006); Green v. Commissioner, T.C. Memo. 2006-39. In
contrast, “amounts received under workmen’s compensation acts as
2
The notice of deficiency indicates the taxable amount was
$11,495. The stipulation of facts, however, states that
respondent determined $11,485 of the disability benefits to be
taxable. Although the discrepancy has not been explained, we
assume the figure used in the notice of deficiency is correct.
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compensation for personal injuries or sickness” generally are not
included in gross income. Sec. 104(a)(1).
Petitioners contend that the Social Security disability
benefits constitute workmen’s compensation within the meaning of
section 104(a). We have previously held, however, that Social
Security disability benefits are not workmen’s compensation.
Green v. Commissioner, supra. A statute is in the nature of a
workmen’s compensation act if it allows disability payments
solely for service-related personal injury or sickness. Haar v.
Commissioner, 78 T.C. 864, 868 (1982), affd. 709 F.2d 1206 (8th
Cir. 1983); Byrne v. Commissioner, T.C. Memo. 2002-319. The
Social Security Act does not qualify because it allows for
disability payments regardless of whether the individual was
injured in the course of employment. See 42 U.S.C. sec.
423(d)(1)(A)(2000); Green v. Commissioner, supra. Accordingly,
the Social Security benefits that petitioner received are
includable in gross income as provided by section 86.
Section 86 taxes Social Security benefits pursuant to a
formula. Married taxpayers filing a joint return whose modified
adjusted gross income plus one-half of their Social Security
benefits exceeds an “adjusted base amount” of $44,000 must
include up to a maximum of 85 percent of their Social Security
benefits in gross income. Mikalonis v. Commissioner, T.C. Memo.
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2000-281. Subject to exceptions not relevant here, modified
adjusted gross income means adjusted gross income (AGI).
Petitioners filed a joint return and reported AGI of
$76,633. Adding one-half of the $13,524 of the Social Security
benefits to the reported AGI yields a total of $83,395. Because
this amount exceeds $44,000, petitioners must include up to 85
percent of the Social Security benefits in gross income.
Petitioners do not dispute that their AGI exceeded $44,000.
Petitioners argue, however, that only the income of the recipient
of Social Security benefits is relevant for purposes of section
86. Petitioners note that section 86 refers to “taxpayer” in the
singular and not “taxpayers” in the plural. For example, section
86(b)(1)(A)(i) refers to “the modified adjusted gross income of
the taxpayer”. Petitioners contend that Mr. Goldfarb’s income
therefore should be excluded from AGI in applying the formula
under section 86. Because petitioner’s income alone did not
exceed $44,000, petitioners contend, a lesser amount of Social
Security benefits is taxable. We disagree.
“In determining the meaning of any Act of Congress, unless
the context indicates otherwise--words importing the singular
include and apply to several persons, parties, or things”. 1
U.S.C. sec. 1 (2000). This rule applies “where it is necessary
to carry out the evident intent of the statute.” First Natl.
Bank in St. Louis v. Missouri, 263 U.S. 640, 657 (1924); Pope &
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Talbot, Inc., & Subs. v. Commissioner, 104 T.C. 574, 582 (1995),
affd. 162 F.3d 1236 (9th Cir. 1999).
Although section 86 refers to a “taxpayer”, a joint return
is treated as the return of a taxable unit, and the net income
reported on the return is subject to tax as though the return
were that of a single individual. Boehm v. Commissioner, T.C.
Memo. 1999-227 (citing Helvering v. Janney, 311 U.S. 189, 192
(1940)). In applying the formula in section 86 to cases
involving a joint return, we have not distinguished between
income earned by the recipient of Social Security benefits and
income earned by the recipient’s spouse. See, e.g., Reimels v.
Commissioner, supra at 247-248; Green v. Commissioner, supra;
Penn v. Commissioner, T.C. Memo. 2001-267; Thomas v.
Commissioner, T.C. Memo. 2001-120.
Petitioners’ interpretation of section 86 would lead to
incongruous results. For example, as discussed above, the amount
of taxable Social Security benefits is calculated by reference to
an adjusted base amount. The higher the adjusted base amount,
the lower the amount of taxable Social Security benefits. In
general, the adjusted base amount is $34,000. In the case of a
joint return, however, the adjusted base amount is increased to
$44,000.
If we were to adopt petitioners’ theory, a married taxpayer
filing jointly would receive the benefit of a higher adjusted
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base amount despite being able to exclude her spouse’s income
from AGI. Application of this theory would cause inconsistent
results. Rather, we conclude section 86 provides a greater
adjusted base amount in the case of a joint return because tax is
computed on the married individuals’ aggregate income. See sec.
6013(d)(3); see also Anderson v. Commissioner, 77 T.C. 1271, 1272
(1981) (holding that the phrase “every person” in section 56(a)
(as in effect for 1976) “refers to all persons (singularly or
plural)”); Boehm v. Commissioner, supra.
We conclude that in the case of a joint return, modified
adjusted gross income under section 86 includes the income of
each spouse. Respondent’s determination is therefore sustained.
2. Estoppel
Petitioner has received Social Security benefits for a
number of years. Petitioners contend that on their joint 2000,
2001, and 2002 returns they did not report the Social Security
benefits as income. Petitioners further contend that respondent
examined those returns but eventually determined that the
benefits were not taxable. Petitioners therefore believe that
respondent should be estopped from including the benefits in
their gross income for subsequent years.
Equitable estoppel is a judicial doctrine that precludes a
party from denying his own acts or representations that induced
another to act to his detriment. Hofstetter v. Commissioner, 98
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T.C. 695, 700 (1992). It is well settled, however, that the
Commissioner cannot be estopped from correcting a mistake of law,
even where a taxpayer may have relied to his detriment on that
mistake. Norfolk S. Corp. v. Commissioner, 104 T.C. 13, 59-60
(1995), affd. 140 F.3d 240 (4th Cir. 1998). An exception exists
only in the rare case where a taxpayer can prove he or she would
suffer an unconscionable injury because of that reliance.
The following conditions must be satisfied before equitable
estoppel will be applied against the Government: (1) A false
representation or wrongful, misleading silence by the party
against whom the opposing party seeks to invoke the doctrine; (2)
an error in a statement of fact and not in an opinion or
statement of law; (3) ignorance of the true facts; (4) reasonable
reliance on the acts or statements of the one against whom
estoppel is claimed; and (5) adverse effects of the acts or
statements of the one against whom estoppel is claimed. Id.
Even if respondent did not adjust petitioners’ prior tax
returns, respondent is not precluded from asserting a deficiency
with respect to the Social Security benefits for 2003. Each
taxable year stands on its own, and the Commissioner may
challenge in a succeeding year what was overlooked in previous
years. See, e.g., Rose v. Commissioner, 55 T.C. 28, 31-32
(1970); Blodgett v. Commissioner, T.C. Memo. 2003-212, affd. 394
F.3d 1030 (8th Cir. 2005). Petitioners have not shown that they
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would suffer unconscionable injury as a result of relying on
respondent’s acceptance of the previously filed returns.
Furthermore, respondent’s error, if any, was in a statement of
law. We therefore conclude that respondent is not estopped from
asserting a deficiency for 2003 with respect to the Social
Security benefits. Respondent’s determination is sustained.
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing,
An appropriate order and
decision will be entered.