Theodore Major & Jacqueline Green, Petitioner

T .C . Memo . 2007-21 7 UNITED STATES TAX COURT THEODORE MAJOR GREEN AND JACQUELINE GREEN, Petitioners V . COMMISSIONER OF INTERNAL REVENUE, Responden t 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 .

SERVED AUG - 7 2007

2 _ 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 i n Moorpark, California . From 1985 to September 19, 2005, Mr . Green worked as a tax auditor for respondent .

Petitioner's Social Security Benefit s 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 .

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 th e judgment . Petitioner never included any portion of the $166,013 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 wit h 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 .

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 b e 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 los s deduction petitioners claimed relating to petitioner's uncollected judgment was not allowable . Based on the disallowance of the $11,068 loss deduction and the resultin g 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 .

Discussio n Summary Judgmen t 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 Benefit s 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), an d (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 considered to be a statute in the nature of workmen's 7 - 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 Deductio n 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 .

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 .

Accuracy-Related Penalt y 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 .