## F I L E D United States Court of Appeals Tenth Circuit 

### APR 9 1998 

### PATRICK FISHER Clerk PUBLISH
UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT

CLIFFORD V. STANLEY, JR.; NANETTE J. STANLEY; JAMES LACEFIELD; FLORENCE L. LACEFIELD; ROBERT L. JEVNAGER; MARJORIE C. JEVNAGER; JACK O. KING; and MARJORIE J. KING, Plaintiffs - Appellants, No. 9 6-1191

v. UNITED STATES OF AMERICA, Defendant - Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLORADO (D.C. CIV. No. 93-S-2340)

Michael J. Abramovitz of Abramovitz & Merriam, Denv er, Colorado, for Plaintiffs-Appellants. Annette M. Wietecha (Richard Farber, Attorney, Tax Division, and Henry L. Solano, United States Attorney for the District of Colorado, Of Counsel, with her on the brief), Tax Division, Department of Justice, Washington, D. C., for Defendant-Appellee.

_________________________ Before BRORBY , McKAY , andHENRY , Circuit Judges.

_________________________1 C.R.S. § 31-30-508 and § 31-30-608 were superseded by C.R.S. § 31-30-1007.

However, only the benefits received under the earlier statutes are in dispute. As the district court explained in its Order which rejected Defendant’s argument that the new statute should apply, Plaintiffs “have chosen, as allowed by statute, to be covered by the local plans, [C.R.S.] § 31-30-508 or § 31-30-608." Attach. to Appellant’s Br. (Order filed March 28, 1996, at 2). -2- McKAY , Circuit Judge.

_________________________

Plaintiffs, four former Denver firefighters and pol ice officers and their spouses, seek recovery of federal income taxes paid to the United States. They contend that their income from pensions awarded und er Colorado Revised Statutes [C.R.S.] § 31-30-508 and § 31-30-608 1 should have been exempt from federal income taxation pursuant to Internal Revenu e Code § 104(a)(1). See 26 U.S.C. § 104(a)(1). After their refund claims were denied by the Internal Revenue Service, all of the plaintiffs filed refund suits which were consolidated by the district court. Almost a year after the dis trict court denied Plaintiffs’ Motion for Summary Judgment, it granted Defendant’s Motion for Summary Judgment and dismissed Plaintiffs’ complaint. Plai ntiffs appeal the district court’s order granting Defendant summary judgment. Orders granting summary judgment are reviewed de no vo by the appellate
court. See Kaul v. Stephan , 83 F.3d 1208, 1212 (10th Cir. 1996). Summary-3-

judgment is only appropriate if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a m atter of law. See Wolf v. Prudential Ins. Co. , 50 F.3d 793, 796 (10th Cir. 1995). In conducting our review, “‘we examine the factual record and reasonable infe rences therefrom in the light most favorable to the party opposing summary judgme nt.’” Kaul , 83 F.3d at 1212 (quoting Wolf

, 50 F.3d at 796). Title 26 U.S.C. § 104(a)(1) provides that “amounts received under workmen’s compensation acts as compensation for per sonal injuries or sickness” shall not be included in the determination of gross income. This statute is clarified by its implementing regulation, 26 C.F.R. § 1.104-1(b), which states that § 104(a)(1) excludes from gross income amounts whic h are received 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.” 26 C.F.R. § 1.104-1(b); see Kane v. United States , 43 F.3d 1446, 1449 (Fed. Cir. 1995). The regulation g oes on to state that § 104(a)(1) does not apply to a retirement pension determined b y reference to the employee’s age or length of service “even though the employee’ s retirement is occasioned by an occupational injury or sickness.” A taxpayer ha s the burden of proving entitlement to the § 104(a) exclusion. See, e.g. , Welch v. Helvering , 290 U.S. 111, 115 (1933); Estate of Wycoff v. Commissioner , 506 F.2d 1144, 1149 (10th2Rather than use the gender-neutral term “worker’s compensation,” we use the

term “workmen’s compensation” because it is used in § 1.104-1(b). -4- Cir. 1974) (“the taxpayer must prove the applicabil ity of the deduction or exception claimed”), cert. denied , 421 U.S. 1000 (1975). A disciplined inquiry under § 104(a)(1) requires th at we first analyze C.R.S. § 31-30-508 and § 31-30-608 to determine whe ther they are workmen’s compensation acts 2 or “statute[s] in the nature of a workmen’s compen sation act.” C.F.R. § 1.104-1(b); see Kane , 43 F.3d at 1449-50 (endorsing a “face of the statute” test to determine if a disability retireme nt statute is in the nature of a workmen’s compensation statute); Craft v. United St ates , 879 F. Supp. 925, 931 (S.D. Ind. 1995) (refusing to investigate the operation of the pension plan without proof that it had been incorporated into the statut e by reference because “[t]he focus should be on the purpose and function, as rev ealed on its face, of the statute”). “[I]t is the statute , not the nature of the injury , that must be analyzed to determine whether [the statute] is in the nature of a workmen’s compensation
act.” Kane , 43 F.3d at 1450; see also Take v. Commissioner , 804 F.2d 553, 558 (9th Cir. 1986) (“Courts are required . . . to exam ine the statute under which a taxpayer receives benefits to determine whether the law qualifies for section 104 treatment. If the statute does not qualify, then w hether the injury was in fact work-related is irrelevant.”) (citing Gallagher v. Commissioner , 75 T.C. 313, 316-5-

(1980)); Rutter v. Commissioner , 760 F.2d 466, 468 (2d Cir.) (exemption denied to a police officer who had sustained an injury in the line of duty because his benefits were not received under a statute “in the nature of a workmen’s compensation act”), cert. denied , 474 U.S. 848 (1985). “The most distinctive feature of workmen’s compensation plans is their limited scope--such laws are meant to apply only to injuries or sickness incurred by virtue of employment.” Take , 804 F.2d at 557. In order to qualify as statutes in the nature of workmen’s compensation acts, C.R.S . § 31-30-508 and § 31-30- 608 must limit the payment of benefits to work-related injuries. See Kane , 43 F.3d at 1450 (holding that “statutes that do not li mit compensation to on-the-job injuries are not in the nature of workmen’s compens ation acts”); Take , 804 F.2d at 557. Statutes providing benefits for any injury or illness that is sustained by an employee, regardless of whether it was incurred in the course of employment, are not statutes in the nature of workmen’s compensatio n acts under § 104. See Take , 804 F.2d at 557; Rutter , 760 F.2d at 468 (“[A] statute that does not disti nguish between work-related injuries and other types of in juries is not ‘in the nature of a workmen’s compensation statute.’”). Both the firefighters’ disability statute and the p olice officers’ statute award benefits only for injuries or illnesses incur red in the course of3 For the first time on appeal, Defendant finds fault in the language of C.R.S. §

31-30-508, the firefighters’ disability pension statute. Defendant insists that the statute is not in the nature of a workmen’s compensation statute because it benefits any firefighter that sustains an injury or sickness on the job, regardless of whether the injury or sickness is sustained by reason of such service. Under [the] statute, for example, a firefighter who falls off a stool at a lunch counter during his regular duty hours and becomes permanently disabled as a result of such fall would still qualify for the payment of benefits under the firefighters disability statute. Appellee’s Br. at 23. Not only does Defendant fail to cite any authority for such a strict construction of “work-related injury,” Defendant failed to raise this argument in the district court. We, therefore, do not address Defendant’s contentions. SeeTeleCommunications, Inc. v. Commissioner, 104 F.3d 1229, 1233 (10th Cir. 1997) (“[T]opreserve the integrity of the appellate structure, we should not be considered ‘a secondshot’ forum . . . where secondary, back-up theories may be mounted for the first time.”); Walker v. Mather, 959 F.2d 894, 896 (10th Cir. 1992). -6- employment. 3 The firefighters’ disability pension statute prov ides, in pertinent part: Any officer, member, or employee of said fire department who becomes mentally or physically disabled while on active duty during regularly assigned hours of dutyfrom any cause not self-inflicted nor due to the habitual use of intoxicants or drugs to an extent whereby he is unable to perform his duties shall be retired by the board. C.R.S. § 31-30-508(1) (emphasis added). The releva nt language from the police officers’ disability statute provides: If any officer, member, or employee of the police d epartment, while in the performance of his duty , becomes mentally or physically permanently disabled by reason of service in such departmentso as to render necessary his retirement from service in such department, the board shall retire such disabled member from se rvice in such department. No such retirement on account of disab ility shall occur4The district court made an identical determination in its initial order denying

Plaintiffs’ Motion for Summary Judgment. Attach. to Appellants’ Br. (Order filed April 11, 1995, at 4) (these statutes are “indisputably in the nature of a worker’s compensation act”). -7- unless said member has contracted said disability w hile in the service of said police department. C.R.S. § 31-30-608(1) (emphasis added). Because th e disability pensions under C.R.S. § 31-30-508 and § 31-30-608 are only paid fo r work-related disabilities and those benefits are paid without regard for an e mployee’s age or length of service, those statutes have the hallmark character istic of statutes in the nature of workmen’s compensation acts. 4 Defendant contends that although the two statutes r estrict benefits to workrelated injuries, thus capturing the essential purp ose of workmen’s compensation statutes, they are not in the nature of workmen’s c ompensation acts because they do not require quick delivery of benefits. Defenda nt bases this argument on the substantial amount of time that exists between some Plaintiffs’ initial injuries and their applications for disability pensions. It is true that some authorities have stated that an ancillary purpose of workmen’s compe nsation statutes is to provide “swift compensation” for work-related injuries. Se e Take , 804 F.2d at 557; C.R.S. § 8-40-102(1) (“It is the intent of the gene ral assembly that the ‘Workers’ Compensation Act of Colorado’ be interpreted so as to assure the quick and efficient delivery of disability and medical benefi ts to injured workers at a5This language in C.R.S. § 8-40-102 relating to the purpose of Colorado’s general

workmen’s compensation act was adopted in 1990 after all Plaintiffs had filed their disability claims. -8- reasonable cost to employers, without the necessityof any litigation.”). 5 However, we hold that the lengthy interval between the officers’ and firefighters’ initial injuries and their filing for benefits is n ot fatal to the determination that C.R.S. § 31-30-508 and § 31-30-608 are statutes in the nature of workmen’s compensation acts. The Colorado statutes, like typ ical workmen’s compensation acts, hold the police and fire departments strictly liable for work-related injury and sickness. See Kane , 43 F.3d at 1449; Take , 804 F.2d at 557. Rather than influencing our classification of the statutes, the time interval between Plaintiffs’ initial injuries and their disability claims is mor e appropriately a factor for us to consider in determining whether Plaintiffs’ pension s were actually received

“ underworkmen’s compensation acts as compensation for personal injuries or sickness .” 26 U.S.C. § 104(a)(1) (emphasis added). We cons ider the time interval in our discussion below where we determine whether the payments were actually received under the statutes as compensation for inj uries as opposed to pensions based on length of service. Because we have determined that § 31-30-508 and § 3 1-30-608 are in the nature of workmen’s compensation acts, we must nextconsider whether the district court was correct in concluding that no re asonable jury could find that-9-

Plaintiffs’ pensions were paid for personal injurie s or sickness. Although there is no dispute that Plaintiffs each received an injury as a result of the performance of their duties, see Appellee’s Br. at 28, at the time Plaintiffs were granted disability retirement, each was eligible for retirement based on length of service which would have provided them with the same benefits as disability retirement. Plaintiffs’ initial injuries, the basis of their di sability retirement claims, occurred from six to twenty-four years before Plaintiffs app lied for disability retirement. In the interim Plaintiffs continued working, and tw o were promoted to higher ranks. A sizable percentage of all retiring police officers and firefighters received disability retirement pensions under § 31- 30-508 and § 31-30-608 when those statutes were in effect. See Appellee’s Br. at 10. In fact, few police officers and firefighters who applied for disability retirement under those statutes were denied. See id. The district court suggested that the high numberof disability retirees was due, in large part, to a st andard of determining disability which was, in the court’s opinion, “fatally flawed. ” Attach. to Appellants’ Br. (Order filed March 28, 1996, at 4). The court reli ed on its conclusion that the pension board’s use of police and fire department e ntrance tests was a flawed criteria for disability in its order granting Defen dant summary judgment. Then the court concluded its order by stating: “The she er number of police and fire retirees who retire with disabilities as well as th e very substantial amounts of time-10-

that often exist between the injuries and the disab ilities refute the assertion that these payments are compensation for the injuries as opposed to pensions based on length of service.” Id . (Order at 5). It could be inferred from the evidence recited abov e that Plaintiffs did not actually receive their pension benefits for work-re lated disabilities and that the benefits were awarded for length of service. Howev er, the standard for granting summary judgment requires a liberal construction of the record in Plaintiffs’ favor. See Sierra Club v. Lujan , 972 F.2d 312, 314 (10th Cir. 1992); Setliff v. Memorial Hosp. of Sheridan County , 850 F.2d 1384, 1391-92 (10th Cir. 1988). As the district court itself conceded, “there is no basis for the Court to conclude that the pension board made their disability determ ination based on any reference to length of service.” Attach. to Appellants’ Br. (Order filed April 11, 1995, at 5). In addressing Defendant’s summary judgment motion, the court should have made the reasonable inference that jobs with t he police and fire departments are dangerous and prone to cause disabling injury r ather than inferring that the large number of retirees with disabilities implied that the disabilities were not legitimate. Undoubtedly, at least some police offi cers and firefighters were retired based on legitimate disabilities. The court should have made individual inquiries into the actual basis for the benefits re ceived by these particular-11-

plaintiffs. Although disability retirement may hav e been granted under a “flawed” standard for determining disability, the p ossible flaw of using department entrance tests to determine employees’ d isabilities does not require us to hold that every employee retired under that testwas not in actuality disabled. Such a holding would foster the absurdity of pronou ncing retired employees nondisabled despite the contrary evidence of medica l experts and common observation. Although the district court held thatthere was “no evidence that [Plaintiffs’] injuries caused physical deterioratio n over time which eventually resulted in them being unable to work,” Attach. to Appellants’ Br. (Order filed March 28, 1996, at 4), our review of the record rev eals that Plaintiffs presented some evidence that their initial injuries caused pr ogressive deterioration that ultimately resulted in an inability to perform thei r jobs. See Appellants’ Supplemental App. at 5, 6, 11, 13, 21, 27, 47, 49. Whether Plaintiffs were granted retirement benefits based on a work-related disability is a disputed question of fact that should have precluded the dis trict court from granting Defendant summary judgment. Our de novo review of the district court’s summary judgment decision reveals that Defendant did not meet the burden requ ired for summary judgment in its favor. Because we cannot hold that no reasonab le jury could find that Plaintiffs’ pension payments were received as compe nsation for their injuries, we-12-

reverse the district court’s order granting summaryjudgment to Defendant. We therefore VACATE the district court’s judgment and REMAND for a full factual inquiry. Appellants’ Motion to File a Supplemental Appendix is GRANTED, and the judgment is VACATED and REMANDED.