378

1 Unless otherwise indicated, all section references are to the Internal Revenue Code of 1986 

(Code), as amended and in effect for the taxable year at issue. The Rule references are to the 

Tax Court Rules of Practice and Procedure. 

SHANNON L. FERNANDEZ, PETITIONER v. COMMISSIONER OF

INTERNAL REVENUE, RESPONDENT

Docket No. 3143–10. Filed May 14, 2012. 

R determined that for 2007 P failed to report income of 

$11,691 from the Los Angeles County Employees Retirement 

Association received on account of a divorce agreement, 

treated like a qualified domestic relations order, awarding her 

a portion of her former husband’s disability pay. P argues that 

either: (1) the $11,691 is excluded from her income under 

I.R.C. sec. 104(a)(1) because I.R.C. sec. 402(e)(1)(A) provides 

that an alternate payee, pursuant to I.R.C. sec. 414(p), who 

is the former spouse of the participant shall be treated as the 

distributee of any distribution or payment made to the alternate payee under a qualified domestic relations order, or (2) 

she steps into the shoes of her former spouse and therefore 

should receive the same tax treatment on the payments. Held: 

P may not exclude the $11,691 from income under I.R.C. sec. 

104(a)(1). 

J. Christopher Toews, for petitioner. 

Kris H. An and Laura Beth Salant, for respondent. 

OPINION 

WHERRY, Judge: This case is before the Court on a petition 

for redetermination of a deficiency. Respondent determined 

that petitioner had unreported income of $11,691, resulting 

in an income tax deficiency of $3,587 for the 2007 tax year. 

This case stems from petitioner’s receipt of $11,691 from 

the Los Angeles County Employees Retirement Association 

(LACERA) pursuant to a divorce agreement awarding her a 

portion of her former husband’s disability pay. The issue for 

decision is whether petitioner may exclude the $11,691 from 

income under section 104. 1

(378) FERNANDEZ v. COMMISSIONER 379

2 Nothing in the record explains why the $159 was treated as nontaxable. 

Background

This case was submitted at the scheduled trial session 

fully stipulated pursuant to Rule 122. The parties’ stipulation of facts, with accompanying exhibits, is incorporated 

herein by this reference. At the time the petition was filed, 

petitioner resided in California. 

On October 1, 1974, Mr. Fernandez, whom petitioner married on November 6, 1976, began working for the Los Angeles 

County Sheriff’s Department. While working for the Los 

Angeles County Sheriff’s Department, Mr. Fernandez became 

disabled and retired on March 31, 1993. At the time of his 

retirement, Mr. Fernandez did not qualify for normal retirement under the LACERA plan on the basis of his age and 

years of service because he did not meet the 20-year service 

requirement. Therefore, Mr. Fernandez opted for a ‘‘serviceconnected disability’’ retirement and began receiving serviceconnected disability retirement benefits from LACERA effective March 31, 1993. 

Petitioner and Mr. Fernandez were legally separated on 

March 24, 1995, and then filed for divorce. The divorce 

became final before the 2007 year at issue in this case. On 

May 5, 1997, the California Superior Court entered an order 

and stipulated division of retirement benefits that awarded 

petitioner a percentage of Mr. Fernandez’ retirement benefits 

from LACERA. It stated that petitioner’s percentage would be 

computed as ‘‘Number of months of LACERA service between 

date of marriage (November 6, 1976) and date of separation 

(March 24, 1995) divided by months of service in LACERA

SYSTEM at time of retirement of Member times 50% times 

Retirement allowance payable to Member.’’ Petitioner is entitled to receive monthly retirement benefit distributions from 

LACERA until Mr. Fernandez’ death. 

During the 2007 tax year petitioner received $11,850 in 

distributions from LACERA. For the 2007 tax year LACERA

issued petitioner a Form 1099–R, Distribution From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, 

Insurance Contracts, etc., treating $11,691 as taxable and 

$159 as nontaxable. 2 Petitioner did not include any of the 

380 138 UNITED STATES TAX COURT REPORTS (378) 

amount received from LACERA in her 2007 Federal income 

tax return. 

On December 28, 2009, respondent sent to petitioner a 

notice of deficiency determining a $3,587 deficiency in income 

tax. On February 2, 2010, petitioner timely petitioned the 

Court for redetermination of the deficiency. 

Discussion

As a general rule, the Commissioner’s determination of a 

taxpayer’s liability in the notice of deficiency is presumed 

correct, and the taxpayer bears the burden of proving that 

the determination is improper. See Rule 142(a); Welch v. 

Helvering, 290 U.S. 111, 115 (1933). 

Section 61(a) defines gross income as ‘‘all income from 

whatever source derived, including * * * (11) Pensions’’, 

unless otherwise provided. Section 104 provides otherwise by 

authorizing an exclusion with respect to compensation for 

injuries or sickness. Such exclusions from gross income are 

construed narrowly. See Commissioner v. Schleier, 515 U.S. 

323, 328 (1995). Section 104 provides in pertinent part as follows: 

SEC. 104. COMPENSATION FOR INJURIES OR SICKNESS.

(a) IN GENERAL.—Except in the case of amounts attributable to (and not 

in excess of) deductions allowed under section 213 (relating to medical, 

etc., expenses) for any prior taxable year, gross income does not include—

(1) amounts received under workmen’s compensation acts as compensation for personal injuries or sickness; 

Regulations promulgated under section 104 further explain 

the exclusion: 

Section 104(a)(1) excludes from gross income amounts which are received 

by an employee under a workmen’s compensation act (such as the Longshoremen’s and Harbor Workers’ Compensation Act, 33 U.S.C., c. 18), or 

under a statute in the nature of a workmen’s compensation act which provides compensation to employees for personal injuries or sickness incurred 

in the course of employment. Section 104(a)(1) also applies to compensation which is paid under a workmen’s compensation act to the survivor or 

survivors of a deceased employee. * * * [Sec. 1.104–1(b), Income Tax 

Regs.] 

The parties do not dispute that section 104(a)(1) excludes 

from Mr. Fernandez’ income the amounts he received from 

LACERA. The question is whether the same section excludes 

(378) FERNANDEZ v. COMMISSIONER 381

3 As petitioner points out, the order entered in her divorce case is not technically a QDRO 

because it relates to a distribution from a government plan. However, under sec. 414(p)(11) the 

distribution is treated in the same manner as one made pursuant to a QDRO. 

4We note that generally tax-qualified plans are subject to sec. 401(a)(13), which prohibits any 

assignment or alienation of the benefits of the plan and that sec. 402 was added to the Code 

in order to create ‘‘an exception to the ERISA preemption provision with respect to these 

[QDRO] orders’’. S. Rept. No. 98–575, at 19 (1984), 1984–2 C.B. 447, 456. Sec. 402, under very 

explicit circumstances, protects the rights of former spouses by allowing for the assignment of 

benefits pursuant to a QDRO. Although part of that protection, the purpose of sec. 402 was not, 

as petitioner argues, to prevent the taxation of benefits assigned from a former spouse. 

the amounts petitioner received attributable to Mr. 

Fernandez’ benefits under the stipulated division of retirement benefits. 

Petitioner argues that the $11,691 is excluded from her 

income because section 402(e)(1)(A) provides that an alternate payee pursuant to section 414(p) who is the former 

spouse of the participant shall be treated as the distributee 

of any distribution of payment made to the alternate payee 

under a qualified domestic relations order (QDRO). 3

Section 402(a) provides that amounts distributed from 

employee trusts are taxable to the distributee ‘‘Except as 

otherwise provided in this section’’, and section 72 provides 

that ‘‘Except as otherwise provided in this chapter gross 

income includes any amount received as an annuity * * * 

under an * * * endowment, or life insurance contract.’’ 4

Nowhere in section 402(a) or section 72 is section 104(a) 

mentioned. Section 402(e)(1)(A) explicitly provides: ‘‘For purposes of subsection (a) [of section 402] and section 72, an 

alternate payee who is the spouse or former spouse of the 

participant shall be treated as the distributee of any distribution or payment made to the alternate payee under a qualified domestic relations order’’. If Congress had included section 104 in this portion of the statute, the result in this case 

might be different. However, without congressional approval 

we decline to expand the reach of section 402(e)(1)(A) beyond 

the sections specifically referred to in its text. 

In the alternative petitioner argues that because she steps 

into the shoes of her former husband and he was injured at 

the time of his early retirement, she should be taxed in the 

same manner as her former husband. A version of section 

104(a)(1) allowing an injured person to exclude disability 

income from his or her taxable income has been in the Code 

since the Revenue Act of 1918 when it was added because 

‘‘Under the present law it is doubtful whether amounts 

382 138 UNITED STATES TAX COURT REPORTS (378) 

5This outcome should come as no surprise to petitioner. Although not controlling on this 

Court, we note that the order and stipulated division of retirement benefits stated that 

‘‘[d]istribution under this Order shall be taxable to the Non-member [petitioner] and not the 

Member [her former spouse].’’ We further note that the State court did not decrease petitioner’s 

share of the disability payments because it believed that she would receive the money tax free. 

received * * * as compensation for personal injury or sickness * * * are required to be included in gross income.’’ H.R. 

Rept. No. 65–767 (1918), 1939–1 C.B. (Part 2) 86, 92. In all 

of the years since, to our knowledge, petitioner’s particular 

issue has not been before the Court. We note that petitioner 

did not suffer an injury, and the Senate explicitly stated ‘‘as 

compensation for personal injury’’. In the case at hand the 

compensation was not for petitioner’s personal injury, but 

that of her former husband. 

Petitioner does not cite any relevant law to establish her 

position. We similarly find none; and in the absence of 

congressional intent we note that we have strictly construed 

section 104(a)(1) to conform to the general purview of section 

61, that all income is taxable unless explicitly excluded. See

Baldwin v. Commissioner, T.C. Memo. 2000–306 (citing Kane 

v. United States, 43 F.3d 1446, 1449 (Fed. Cir. 1994)). 5

Accordingly, we find that the $11,691 is taxable income to 

petitioner and she is liable for the deficiency. 

The Court has considered all of petitioner’s contentions, 

arguments, requests, and statements. To the extent not discussed herein, we conclude that they are meritless, moot, or 

irrelevant. 

To reflect the foregoing, 

Decision will be entered for respondent

f .