1 Unless otherwise indicated, all section references are to the

Internal Revenue Code in effect for the years in issue, and all

Rule references are to the Tax Court Rules of Practice and

Procedure. 

T.C. Memo. 1997-277

UNITED STATES TAX COURT

MARGARET M. MERKER, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 26855-95. Filed June 18, 1997.

Margaret M. Merker, pro se.

Marjory A. Gilbert, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

POWELL, Special Trial Judge: This case was assigned

pursuant to the provisions of section 7443A(b)(3) and Rules 180,

181, and 182.1
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2 Respondent concedes that for the taxable years 1992 and 1993 

(1) petitioner is not liable for the additions to tax under sec.

6651(a) due to petitioner's reliance on the erroneous advice of

the U.S. Office of Personnel Management, discussed infra; (2)

petitioner is entitled to credits for the permanently and totally

disabled pursuant to sec. 22 in the amounts of $472 and $463,

respectively; and (3) if the FERS disability retirement annuity

is not subject to Federal income tax, petitioner was not required

to file Federal income tax returns. Petitioner concedes that the

interest and dividends described in the notice of deficiency

constitute taxable income.

3 Congress created the Federal Employees' Retirement System,

the successor to the Civil Service Retirement System, with the

enactment of the Federal Employees' Retirement System Act of

1986, Pub. L. 99-335, 100 Stat. 514, codified as amended at 5

U.S.C. secs. 8401-8479 (1994).

Respondent determined deficiencies in petitioner's Federal

income taxes for the taxable years 1992 and 1993 in the amounts

of $799 and $791, respectively. Respondent also determined

additions to tax pursuant to section 6651(a) in the respective

amounts of $199.75 and $197.75. Petitioner resided in Chicago,

Illinois, at the time she filed her petition.

After concessions,2 the primary issue is whether amounts

received by petitioner as a disability retirement annuity under

the Federal Employees' Retirement System (FERS)3 are excludable

from gross income for the years in issue.

FINDINGS OF FACT 

Petitioner worked in a distribution center for the U.S.

Postal Service (Postal Service) from August 1984 to October 1990. 

As a result of the inhalation of dust emanating from the postal

machines petitioner developed severe asthma or "occupational
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disease". To compound petitioner's medical problems, petitioner

was injured when she fell while on the job. Petitioner has

severe arthritis, has had one knee replaced, and, as of the date

of trial, was scheduled for surgery to replace her other knee. 

These maladies have left petitioner completely and permanently

disabled. In October 1990, at the age of 54, petitioner retired

from the Postal Service due to her disability. Petitioner

subsequently began receiving a FERS disability retirement annuity

(disability annuity). Petitioner received disability annuity

payments during 1992 and 1993 in the amounts of $10,954 and

$11,182, respectively. 

Petitioner was told by the U.S. Office of Personnel

Management (OPM) that her disability annuity was not subject to

Federal income tax. No Federal income tax was withheld from the

payments. As a result of the advice from OPM petitioner did not

file Federal income tax returns for the taxable years 1992, 1993,

or 1994.

Respondent issued a notice of deficiency for the taxable

years 1992 and 1993. In the notice of deficiency respondent

determined that petitioner failed to report the disability

annuity payments, as well as interest and dividend income in the

amounts of $258 and $149, respectively, as gross income for the

taxable years 1992 and 1993. As of the date of trial, no notice
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of deficiency had been issued to petitioner for the 1994 taxable

year.
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4 Petitioner's petition also sought to bring her 1994 taxable

year before the Court. Since no notice of deficiency has been

issued for petitioner's 1994 taxable year, we lack jurisdiction

over petitioner's 1994 taxable year. Estate of Bartels v.

Commissioner, 106 T.C. 430 (1996).

OPINION

Petitioner's brief does not directly address the taxability

of the disability annuity but rather expresses petitioner's

frustration and anger at the U.S. Government. Her various

statements, requests, and arguments reflect these feelings. This

Court is a court of limited jurisdiction. See sec. 7442; Wilt v.

Commissioner, 60 T.C. 977, 978 (1973). Our jurisdiction to

redetermine a deficiency is dependent on the issuance of a valid

notice of deficiency. Sec. 6213(a); Rule 13(a); Estate of

Bartels v. Commissioner, 106 T.C. 430, 435 (1996); Levitt v.

Commissioner, 97 T.C. 437, 441 (1991). Our jurisdiction does not

extend to settling employment disputes with various departments

and agencies of the United States. See sec. 7442; Steines v.

Commissioner, T.C. Memo. 1991-588, affd. without published

opinion 12 F.3d 1101 (7th Cir. 1993). The issue over which we

have jurisdiction is whether petitioner's FERS disability annuity

payments, or any portion thereof, are excludable from gross

income.4

Section 61(a) defines gross income broadly as "all income

from whatever source derived". The Supreme Court "has given a

liberal construction to this broad phraseology in recognition of
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5 Sec. 104(a)(4) applies to taxpayers that have served in the

armed forces or certain other organizations with which petitioner

(continued...)

the intention of Congress to tax all gains except those

specifically exempted." Commissioner v. Glenshaw Glass Co., 348

U.S. 426, 430 (1955). Exclusions from income are matters of

legislative grace and are construed narrowly. Commissioner v.

Schleier, 515 U.S. ___, , 115 S. Ct. 2159, 2163 (1995); 

Mostowy v. United States, 966 F.2d 668, 671 (Fed. Cir. 1992). A

taxpayer seeking a deduction or exclusion "must be able to point

to an applicable statute and show that he comes within its

terms." New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440

(1934); Commissioner v. Schleier, supra.

Generally, section 72(b) excludes from gross income any

amount received as an annuity under an annuity, endowment, or

life insurance contract to the extent such an amount is

attributable to the taxpayer's investment in the contract. 

Section 1.72-15(b), Income Tax Regs., provides that, as a general

rule, section 72 does not apply to any amount received as an

accident or health benefit. 

Section 104(a) excludes from gross income any amounts

described in paragraphs (1) through (5) of that section. 

Paragraphs (4) and (5) of section 104(a) are, on their face,

inapplicable to the facts before us, and we focus our attention

on the remaining paragraphs.5 In addition, section 105(a)
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5(...continued)

has had no affiliation. Sec. 104(a)(5) applies to victims of

terrorist attacks. Petitioner does not purport to be the victim

of a terrorist attack.

includes in gross income certain amounts received under accident

and health plans.

Section 104(a)(1)

Section 104(a)(1) excludes from gross income "amounts

received under workmen's compensation acts as compensation for

personal injuries or sickness". To meet the definition of

"workmen's compensation acts" for purposes of section 104(a)(1)

the statute in issue must require, as a precondition to

eligibility for benefits, that the injury be incurred in the

course of employment. Take v. Commissioner, 804 F.2d 553, 557

(9th Cir. 1986), affg. 82 T.C. 630, 634 (1984); Haar v.

Commissioner, 78 T.C. 864, 868 (1982), affd. per curiam 709 F.2d

1206 (8th Cir. 1983). The relevant inquiry is into the nature of

the statute pursuant to which the payment is made and not the

source of the particular taxpayer's injury. Smelley v. United

States, 806 F. Supp. 932, 935 (N.D. Ala. 1992), affd. per curiam

3 F.3d 389 (11th Cir. 1993). Thus, if the statute does not

qualify, the fact that the taxpayer's injury was in fact work

related is irrelevant. Id.

Eligibility for disability retirement benefits under FERS is

dependent on completion of 18 months of creditable civilian
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6 5 U.S.C. sec. 8331(6) was repealed by the Omnibus Budget

Reconciliation Act of 1980, Pub. L. 96-499, tit. IV, sec. 403(b),

94 Stat. 2606. Cf. 5 U.S.C. sec. 8337 (1994).

service and a determination of disability. 5 U.S.C. sec.

8451(a)(1)(A) (1994). Disability is defined in 5 U.S.C. sec.

8451(a)(1)(B) (1994), which provides:

For purposes of this subsection, an employee shall be

considered disabled only if the employee is found by the

Office [OPM] to be unable, because of disease or injury, to

render useful and efficient service in the employee's

position. 

Under this statute a taxpayer's disability, and thus eligibility

for benefits, depends upon the ability to perform the tasks

required by the employment, not the place of injury. 

Petitioner's disability annuity payments were made pursuant to 5

U.S.C. section 8451(a)(1). Because that section does not

distinguish between injuries occurring on the job or elsewhere,

section 104(a)(1) does not exclude the disability annuity

payments received by petitioner from gross income. See Haar v.

Commissioner, supra at 866-868 (holding that similar wording in 5

U.S.C. sec. 8331(6), relating to the Civil Service Retirement

System, did not distinguish between injuries occurring on and off

the job).6

Section 104(a)(2)

Section 104(a)(2) excludes from gross income "the amount of

any damages received (whether by suit or agreement and whether as

lump sums or as periodic payments) on account of personal
- 9 -

injuries or sickness". "The term 'damages received (whether by

suit or agreement)' means an amount received (other than

workmen's compensation) through prosecution of a legal suit or

action based upon tort or tort type rights, or through a

settlement agreement entered into in lieu of such prosecution." 

Sec. 1.104-1(c), Income Tax Regs. Thus, the exclusion must

derive from some sort of tort claim against the payor. Rickel v.

Commissioner, 900 F.2d 655, 658 (3d Cir. 1990), affg. in part and

revg. in part on other grounds 92 T.C. 510 (1989).

The Federal Employees' Compensation Act provides

compensation to Federal employees for work-related injuries. 5

U.S.C. secs. 8101-8151 (1994). The liability of the United

States or any instrumentality thereof, in or under any judicial

proceeding, civil action, workmen's compensation statute, or

Federal tort liability statute, is expressly limited to the

relief provided in the Federal Employees' Compensation Act. 5

U.S.C. sec. 8116(c). Petitioner, however, received her

disability annuity under 5 U.S.C. secs. 8451-8456 (1994). Since

the exclusive legal remedy for redress of petitioner's tort

claims against the Federal Government resulting from on the job

injuries is contained in the Federal Employees' Compensation Act,

it is axiomatic that petitioner's disability annuity, received

under a different set of statutes, must have been received for a

different purpose. See Flaherty v. Commissioner, T.C. Memo.
- 10 -

1987-61 (holding that an Internal Revenue Service employee's

disability retirement annuity payments received under the Civil

Service Retirement System were not excludable under section

104(a)(2) because the payments were intended to provide for the

physical and mental well-being of the employee and were not

damages from the settlement or prosecution of a legal suit); see

also Federal Employees' Retirement System Act of 1986, Pub. L.

99-335, sec. 100A, 100 Stat. 516 (listing the purposes of FERS,

none of which include compensation for tort type claims). Thus,

section 104(a)(2) does not apply here.

Sections 104(a)(3) and 105(a)

Section 104(a)(3) excludes from gross income amounts

received by an employee "through accident or health insurance for

personal injuries or sickness" except to the extent such amounts

are (A) attributable to contributions made by the employer which

were not includable in the gross income of the employee, or (B)

paid by the employer. Section 105(a) is essentially the mirror

image of section 104(a)(3), and, subject to two exceptions,

includes in the gross income of an employee amounts received

through accident or health insurance for personal injuries or

sickness to the extent such amounts are (A) attributable to
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7 Former sec. 105(d) provided a limited exclusion from gross

income for amounts received in lieu of wages prior to attaining

age 65 by completely disabled persons retired on disability. 

Sec. 105(d) was repealed by sec. 122(b) of the Social Security

Amendments of 1983, Pub. L. 98-21, 97 Stat. 87, and replaced with

a credit for the permanently and totally disabled for years

beginning after Dec. 31, 1983, provided in sec. 37. Sec. 37 was

subsequently renumbered as sec. 22. Deficit Reduction Act of

1984, Pub. L. 98-369, sec. 471(c)(1), 98 Stat. 484, 826. 

Respondent has conceded that petitioner is entitled to a credit

under sec. 22 for the years in issue. See supra note 2.

contributions by the employer which were not includable in the

gross income of the employee or (B) are paid by the employer.7

Section 105(b) provides an exclusion for amounts paid by an

employer to the taxpayer to reimburse the taxpayer for expenses

for medical care. Medical expense reimbursements are not at

issue in this case, so the exception in section 105(b) does not

apply. Section 105(c) excludes from gross income amounts paid by

an employer to the extent such amounts: (1) Constitute payment

for the permanent loss or loss of use of a member or function of

the body, or the permanent disfigurement of the taxpayer, and (2)

are computed with reference to the nature of the injury without

regard to the period the employee is absent from work. However,

section 105(c) applies to exclude payments from gross income only

if the plan or contract under which such payments are made varies

the amount of the payments according to the type and severity of

the injury suffered by the employee. Rosen v. United States, 829

F.2d 506, 509 (4th Cir. 1987); Beisler v. Commissioner, 814 F.2d

1304, 1307 (9th Cir. 1987), affg. en banc T.C. Memo. 1985-25.
- 12 -

8 We need not decide, therefore, any questions concerning the

interrelationship or applicability of these two sections to the

disability annuity received by petitioner.

Under FERS, the computation of disability retirement annuity

payments does not vary with the nature of the injury; all

employees considered "disabled" receive benefits under a single

formula based on the employee's "average pay". 5 U.S.C. secs.

8451 and 8452. Accordingly, petitioner is not entitled to

exclude the disability annuity payments under section 105(c). 

See Beisler v. Commissioner, supra at 1309. 

Thus, we are left to consider the possibility of exclusion

under section 104(a)(3) or 72(b). To grant petitioner relief

from taxation under either section 104(a)(3) or 72(b), it is

necessary to determine the amount of the disability annuity

payments attributable to petitioner's contributions toward the

disability annuity as well as the percentage of the overall

contributions that this constitutes. While petitioner's

participation in FERS may require after-tax contributions, there

is no evidence of the amount of her after-tax FERS contributions. 

See 5 U.S.C. sec. 8422(a)(1) and (2) (1994). Accordingly, we are

unable to grant petitioner any relief under either section

104(a)(3) or 72(b).8

 Petitioner claims that she is being persecuted for the

Government's mistake. In legal terms, this amounts to an

argument that respondent should be equitably estopped from
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assessing the deficiencies against petitioner because OPM

provided petitioner with erroneous advice concerning the

taxability of her disability annuity payments. Even if we assume

that equitable estoppel can operate against the Government in

some circumstances, there is no basis for applying the concept

here. Cf. OPM v. Richmond, 496 U.S. 414, 420 (1990). The

traditional elements of estoppel are: (1) Misrepresentation by

the party against whom estoppel is asserted; (2) reasonable

reliance on that misrepresentation by the party asserting

estoppel; and (3) detriment to the party asserting estoppel. 

Heckler v. Community Health Services, 467 U.S. 51, 59 (1984);

Kennedy v. United States, 965 F.2d 413, 417 (7th Cir. 1992). 

Both the Heckler and Kennedy cases discussed the detriment

requirement. In Heckler v. Community Health Services, supra, the

Supreme Court described the "detriment" suffered as the inability

to retain money (medicare reimbursements) that should never have

been received in the first place. The Supreme Court stated:

this is not a case in which * * * [a party] has lost any

legal right, either vested or contingent, or suffered any

adverse change in its status. * * * Here * * * [the party]

lost no rights but merely was induced to do something which

could be corrected at a later time.

There is no doubt that * * * [the party] will be

adversely affected by the Government's recoupment of the

funds that it has already spent. It will surely have to

curtail its operations and may even be forced to seek relief

from its debts through bankruptcy. * * * [The party] may

need an extended period of repayment or other modifications

in the recoupment process if it is to continue to operate,

but questions concerning the Government's method of

enforcing collection are not before us. The question is
- 14 -

whether the Government has entirely forfeited its right to

the money. [Id. at 61-62; fn. refs. omitted.]

In Kennedy v. United States, supra, the Court of Appeals for

the Seventh Circuit held that the underpayment of taxes lawfully

owing did not constitute a detriment, relying on Heckler v.

Community Health Services, supra. The Court of Appeals for the

Seventh Circuit stated that "We do not believe the estoppel

doctrine should be used against the government when the estoppel

claimant's detriment is the loss of a windfall that could have

never been statutorily effectuated". Kennedy v. United States,

supra at 418-419; see also Thomas v. Commissioner, 92 T.C. 206,

227 (1989). Accordingly, petitioner is not entitled to relief

under the equitable estoppel doctrine.

Petitioner also demands a jury trial. In Mathes v.

Commissioner, 576 F.2d 70, 71-72 (5th Cir. 1978), affg. T.C.

Memo. 1977-220, the Court of Appeals for the Fifth Circuit

answered this demand by stating that:

The Seventh Amendment preserves the right to jury trial "in

suits at common law." Since there was no right of action at

common law against a sovereign, enforceable by jury trial or

otherwise, there is no constitutional right to a jury trial

in a suit against the United States. Thus, there is a right

to a jury trial in actions against the United States only if

a statute so provides. Congress has not so provided when

the taxpayer elects not to pay the assessment and sue for a

redetermination in the Tax Court. For a taxpayer to obtain

a trial by jury, he must pay the tax allegedly owed and sue

for a refund in [United States] district court. The law is

therefore clear that a taxpayer who elects to bring his suit

in the Tax Court has no right, statutory or constitutional,

to a trial by jury. [Citations omitted.]
- 15 -

Finally, in passing, petitioner has mentioned that she

incurred significant medical expenses. Section 213(a), subject

to certain limitations, allows taxpayers a deduction for medical

expenses that are not compensated for by insurance or otherwise. 

However, petitioner has not introduced any evidence to establish

the amount of her medical expenses for the years in issue. 

Accordingly, we are unable to grant petitioner any relief from

the determined deficiencies in the form of a deduction for

medical expenses.

We conclude that, except as provided in respondent's

concessions, petitioner is not entitled to any relief from the

determined deficiencies. We reach this decision with some

reluctance, but note, as did the Supreme Court in Federal Crop

Ins. Corp. v. Merrill, 332 U.S. 380, 386 (1947), that "The

circumstances of this case tempt one to read the [regulations]

[and statutes] * * * with charitable laxity. But not even the

temptations of a hard case can elude the clear meaning of the

[regulations] [and statutes]." 

To reflect the foregoing,

Decision will be entered

under Rule 155.