TAX COURT OPINION

Case: Paul Edward & Diane M. Pollard
Docket Number: 1619-09
Judge: Cohen
Opinion Type: memo
Filed: 06/14/2011
Pages: 6

1 T.C. Memo. 2011-132 UNITED STATES TAX COURT PAUL:ED ARDe& DIANE _M:&POLLARD, Petitionersg. COMMISE IONER OF INTERNAL REVENUE, Respondent Docket No. 1519-09. Filed June 14, 2011. Paul Edward ?ollard and iane M. Pollard, pro sese . Robert V . Boe shaar , f or espondent . MEMORANDUM FINDINGS OF FACT AND OPINION COHEN Judge: Respondent determined a deficiency of $3,003 in petitioners' Federal income tax for 2006 resultingefrom petitioners' failure to report Social: Security benefits received byaPaul E. Pollarde(petitioner) .a Unless otherwise indicáted all section references are to the Internal* Revenue Codel SERV£ð JUN 1 4 20u - 2 - FINDINGS OF FACT Some of the facts have been stipulated, and the stipulated facts are incorporated by this reference. Petitioners resided in Washington when they filed their petition. During 2006, petitioner received payments from the Social Security Administration (SSA) , including a lump-sum payment attributable to earlier years and monthly payments for 2006. Petitioners did not report any of the payments on their joint Federal income tax return for 2006 and did not" calculate the taxable amount of petitioner's benefits; thus they did not elect to use an alternative method applicable to lump-sum payments. Petitioners' reported adjusted gross income from other sources was $41,482. The SSA reported to the Internal Revenue Service (IRS) that its payments to petitioner totaled $40,745 during 2006 and that petitioner repaid $4,206 that year, "for a net payment of, $36,539 Subsequent information provided by the SSA indicated that petitioner received $35, 477 during 2006, because $1,*062 was deducted: for Medicare, and that $25, 465 paid- in 2006 wast related to 2001s, The determined deficiency was calculated by including taxable benefits of $19, 389 and making a computational adjoustment to petitioners'-sclaimed medical expense deduction. - 3 - P NION Section 86 provides that g oss income for a taxable year of any taxpayer includes up to 8 percent of, Social Security benefits received during the t axable year. Amounts received as Social Secur ty isability benefits are includable sin the taxpayer's income Reimels v. Commissioner, e123 T.C,. 245,. 247- 248 (2004), affd. 436 F.,3d 344 (2d Cir. 2006) . Section 86 (a) provides t at ,if the .taxpayer' s plodified adjusted grossaincome,plus one-half ofs the Social Security benefits received by,t;he taxpayer exceeds the adjusted base, amount, then gross income inc]udes the lesser of: (1) Thessum of (a) 85 percent,of such excess, plus ,(b) the elesser of (i) one- half of the Social Security benefits creceived during the eyear or (ii) one-half .of -the differen e between the (adjusted ba,se7amount and the base amount of the taxpayer; or (2), -85 ,percent of .the Social Security benefits received during the taxable year. - Sec. 86.(a) (2) . . With respect. to a married taxpayer who files a joint return, the base amount and t e adjusted base amount, are .$32, 000 and $44, 000, respec ively. S c .. 86 (c) (1) (B) , (2),(B) . The taxable benefits determi.ned in the statutory notice,- $19, 389, are consistent with tae formula provided in the statute. - In the petition, petitio ers conceded that the amount paid to petitioner in 2006 was $35, 477 but suggested that the disagreement rela-ed to the $4,206 repaid to the SSA that year. - 4 - Repayments during the taxable year reduce the amount ináludable in income. Sec. 86(d) (2). The statutory notice calculation reflected that reduction before the formula wEE applied. During his testimony at trial, petitioner denied receiving the amount the SSA reported to the IRS for 2006. He claimed that his bank records did not reflect deposits of the amount repoite and that he had not "èven to date" seen a form reporting^2006 payments to the IRS. Petitioner's testiniony contradicted the parties' express stipulation that thŠ SSA reported to the IRS that in 2006 it pdici petítioner $36,535 ($40,745 less $4,206 Écr epayment during 2006) . Moreover, a statement from thé SSA regarding amount!s it paid to' petitiorier düring 2006 was at tadhe 1 to' the stibulation as an exhibit . Petitioner did not þiaoduce h bank records at trial or when given the opportunity to do so subsequent to trial, and the' inconsistencies in the re:cord ½emÄ uriexþlained. -i Because of inconsistencies inathe recorci,' the Court invitied afsupplemental stipulation after the case was submitted. The record was reopened to admiti coþies "of letterd petiticiner sent o the IRS tio explain his position. It appears-from thode letters that petitioner is seeking to exclude from 2006 income a lump sum amoünt paid by¢the SSA in 2006 pursuant to an award of disability benefits "for earlier years . - 5 - Taxpayers may make an election with respetta to the amount of at lump-sum payment of Social Security benef its' received during a the taxable years in which a partion -is attributable to =previous years. Sec. 86(e). Section 96(e) provides that if the election- is made, y the amount included in' gross incomeafor the taxable year of receipt-mustinot exceed the sum of the increases in gross e incom:e- forathose previous taxable years that would result from taking into account thea portion of the benefite attributable to the previous taxable years . Section 86 (e) is consistent swith the general rule that taxpayers such aw petitioners who use the cashi receipts^ and disbursements met.hod of: accouiting inust include an item in gross income when it is actually or constructively received.'s Sec. 451 (a);; sec . 1. 451-1 (a) , Income Tax Regs . Thus a lump- sum payment of Social Security benefits is to be 'included in gross income in the year in which t e payment is received rather than in the years to which the payment is attributable, to the extent that application of the formula results in a taxable amount. The election merely provides an a Lternative methód of applying the formula to determine the taxable portion of the Social Security bene f it s . Petitioners have not made the election permitted by section 86 (e) . They fai]ed to report any_ of the benefits on their 2006 tax return. There is no info::mation. in the record concerning - 6 - their ad-justed gross incomes for 2001 or any year-other than 2006, so.we cannot determine whether the election would have benefited petitioners". (Petitioner disputes the total Social Security ' benefits received in 2005 and 2006 and has referred to information about benefits paid in 2005, but 2005, isa not, before the Court and,there is no information about petitioners' other income fors that year.) In any 2event, the election would affect the computation . ofs tax only f or- 2006 ; petitioners are - not entitled to exclude altogether amounts received in-2006 but - attributable to a different year. There is neither evidence nor authority suggesting-that. petitioner's taxable Social Security benefits for 2006-are less than $19 , 38 9 - Thus Decision will be entered for respondent.