Thomas Wayne & Rosalie Geraldine Keene, Petitioner

T .C . Summary Opinion 2006-196

UNITED STATES TAX COUR T

ADM . 1- RECORDED I SEz'JIC E

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I - - ~S .T . JUDG E W IP1_ FILES THOMAS WAYNE AND ROSALIE GERALDINE KEENE, Petitioners v . COMMISSIONER OF INTERNAL REVENUE, Responden t Docket No . 21153-05S . Filed December 27, 2006 .

Thomas Wayne and Rosalie Geraldine Keene, pro se .

Brenda Fitzgerald , for respondent .

WELLS, Judge :

This case was heard pursuant to th e provisions of section 7463 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 , all section references are to the Internal Revenue Code , as amended .

SERVED DEC 2 7 2006

Respondent determined a deficiency in petitioners' Federal income tax of $1,995 for their 2003 taxable year . The issue we decide is whether certain disability benefits received by petitioner Thomas Wayne Keene (petitioner) as workers' compensation are includable in gross income pursuant to section 86 (a) .

Background Some of the facts and certain exhibits have been stipulated .

The parties' stipulations of fact are incorporated in this opinion by reference and are found as facts in the instant case .

At the time of filing the petition in the instant case, petitioners resided in Warner Robins, Georgia .

During 2003, petitioner received disability benefits from the U .S . Department of Labor (DOL), Office of Workers' Compensation Programs, for a back injury that petitioner suffered on February 23, 1994 . During 2003, petitioner also received Social Security disability benefits from the Social Security Administration (SSA) . According to the SSA, petitioner's primary disability is "discogenic/degenerative disorder of the back" and his secondary disability is "diabetes mellitus" .

The SSA reported to the Internal Revenue Service that petitioner had received "Net Benefits for 2003" totaling $12,019, of which $9,706 was paid by DOL as workers' compensation benefits . On the basis of a letter from the SSA, petitioner calculated that his taxable Social Security benefits for 2003 were $1,3761 and reported that amount on his 2003 tax return .

Respondent determined that petitioner's taxable Social Security benefits totaled $10,216 .15, $8,840 .15 greater than the amount reported by petitioner .

Discussion Petitioners contend, inter alia, that the Workers ' Compensation benefits petitioner received from DOL are not taxable because they were not paid by the SSA .2 We disagree .

'The SSA letter petitioner used to calculate his taxable Social Security benefits states that petitioner's monthly Social Security benefits for 2003 would be $192 .70, minus a $58 .70 deduction for Medicare, resulting in $134 to be deposited in petitioner's bank account each month .

It is unclear how petitioner determined his taxable Social Security benefits totaled $1,376, because $134 multiplied by 12 months equals $1,608 . We note that $192 .70 multiplied by 12 months equals $2,312 .40, and that the difference between petitioner's $12,019 net Social Security benefits and the $9,706 paid by DOL is $2,313 .

2Petitioners also contend that the issue in the instant case was previously decided in their favor in a Tax Court case at docket No . 22889-04S regarding their 2002 taxable year . Petitioners also rely on a letter from respondent's Appeals Office dated Mar . 8, 2005, implying that respondent wrongly included petitioner's workers' compensation benefits in determining petitioners' Social Security benefits for 2003 .

We note that respondent and petitioner signed an agreed decision in the case at docket No . 22889-04S based on what respondent now contends was an erroneous conclusion b y respondent's Appeals Office . We also note that afte r respondent's Appeals Office realized the error contained in th e Mar . 8, 2005, letter to petitioners, respondent's Appeals offic e sent another letter dated July 18, 2005, to petitioners informin g . .)

(continued .

Gross income includes all income from whatever source derived unless excluded by a provision of the Internal Revenue Code . Sec . 61(a) . Section 86(a) provides that gross income includes Social Security benefits in an amount equal to a prescribed formula .' Social Security benefits mean any amount received by a taxpayer by reason of entitlement to a monthly benefit under title II of the Social Security Act . Sec .

86(d)(1)(A) . Title II of the Social Security Act provides for disability benefits . See 42 U .S .C . secs . 401-434 (2000) .

Prior to 1984, disability payments received by a taxpayer who retired due to a permanent disability were excluded from gross income pursuant tosection 105(d) . The Social Security Amendments of 1983, Pub . L . 98-21, sec . 122(b), 97 Stat . 87, repealed section 105(d) and the limited exclusion of disability benefits for tax years beginning after 1983 . Since 1984, Social Security disability benefits have been taxed in the same manne r z( .

. .continued) them that the March 8 letter was incorrect and that petitioner's workers' compensation benefits are includable in petitioner's Social Security benefits for 2003 .

We agree with petitioners that respondent's Appeals Office has caused petitioners a great deal of confusion in the instant case . Nonetheless, for reasons stated below, petitioner' s workers' compensation benefits are includable in gross income as . taxable Social Security benefits notwithstanding respondent's erroneous conclusions in the case at docket No . 22889-04S regarding petitioners' 2002 taxable year .

3Petitioners have not challenged the formula provided in sec . 86(a) .

as other Social Security benefits and subject to tax pursuant to section 86 . Sec . 86(d)(1) ; Thomas v . Commissioner , T .C . Memo .

2001-120 (and cases cited therein) . A reduction of Social Security disability benefits due to the receipt of benefits under a workmen's compensation act does not reduce the total amount of taxable Social Security benefits . Sec . 86(d)(3) ; Mikalonis v .

Commissioner , T .C . Memo . 2000-281 . Accordingly, we hold the amounts petitioner received from DOL as workers' compensation benefits are includable in gross income as taxable Social Security disability benefits .

To reflect the foregoing, Decision will be entere d for respondent .