TAX COURT OPINION

Case: Umasia Letricia Morris-Kaf
Docket Number: 5952-17
Judge: Thornton
Opinion Type: bench
Filed: 09/28/2018
Pages: 11

RMM UNITED STATES TAX COURT WASHINGTON, DC 20217 UMASIA LETRICIA MORRIS-KAF, Petitioner, v. ) ) ) ) Docket No. 5952-17. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED: That the Clerk of the Court shall transmit herewith to petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Michael B. Thornton at Los Angeles, California, containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. decision will be entered for respondent. It is further In accordance with the oral findings of fact and opinion, ORDERED: That the transcript of the Court's above-referenced oral fimdings of fact and opinion is hereby amended as follows: On page 5, strike the sentence beginning at line 11 and substitute therefore: Petitioner's disability retirement allowance was determined to be 33 percent of her final compensation pursuant to a formula under which a disability retirement allowance is computed as the greater of (1) an amount that includes both an annuity based on the member's accumulated contributions and a pension determined by reference to the member's years of service; or (2) 33 percent of final compensation. It is further SERVED Sep 28 2018 - 2 - ORDERED: That in all other respects, the Court's oral findings of fact and opinion remains the same. (Signed) Michael B. Thornton Judge Dated: Washington, D.C. September 28, 2018 Bench Opinion by Judge Michael B. Thornton September 11, 2018 Umasia Letrq cia Morris-Kaf v. Commissioner of Internal 3 Revenue Docket No. 5952-17 THE COURT: The Court has decided to render oral findings of fact and opinion in this case, and the following represents the Court's oral findings of fact and opinion. Except as otherwise provided by Rule 152(c) of the Tax Court Rules of Practice and Procedure, the oral findings of fact and opinion shall not be relied upon as precedent in any other case. This bench opinion is made pursuant to the 1 2 3 4 5 6 7 8 9 10 11 12 13 14 authority granted by section 7459(b) and Rule 152. 15 Section references are to the Internal Revenue Code in 16 effect for the taxable years at issue. All rule 17 references are to the Tax Court Rules of Practice and 18 Procedure. All monetary amounts are rounded to the nearest 19 dollar. 20 21 This case was tried on September 10, 2018, in Los Angeles, California. Petitioner appeared pro se. 22 Daniel V. Triplett and Daniel C. Chavez appeared on behalf 23 of respondent. 24 25 FINDINGS OF FACT Petitioner was employed with the Public Works (973)406-2250|operationsgescribersnet|www.escribersmet 4 1 2 Department of the City of Los Angeles from April 1993 until October 2001. During this period petitioner filed 3 multiple workers' compensation claims. One such claim 4 5 6 7 8 9 remained open in 2014 and is still pending. Petitioner received no payments from any such claim in 2014. Petitioner filed a claim for disability retirement on January 27, 2011, pursuant to Los Angeles Administrative Code (LAAC) section 4.1055 (pre-2013 LAAC). The Los Angeles City Employees Retirement Systems (LACERS) 10 allowed petitioner to file her disability retirement 11 application outside the normal one-year filing period 12 because petitioner had an "accepted, open and related" 13 worker's compensation claim pending. Petitioner's 14 disability retirement was approved by LACERS on October 15 23, 2012, and was made retroactively effective as of 16 November 1, 2001. 17 Effective July 25, 2013, the Los Angeles City 18 Council approved ordinance 182,629, which replaced the 19 relevant LAAC sections with new sections (post-2013 LAAC). 20 This amendment was technical in nature and did not change 21 22 any benefits or conditions of entitlement. In both pre- 2013 LAAC section 4.1055 and post-2013 LAAC section 23 4.1008, disability retirement is allowed for "[a]ny member 24 who has five or more years of continuous service and who 25 has become physically or mentally incapacitated and who is $73)406-2250|operations@escribersnet|www.escribersaet incapable, as a result thereof, of performing his or her duties" and is determined by reference to such member's "accumulated contributions" and "the number of years of 5 service of such member." In 2014 petitioner received disability retirement distributions from LACERS in the total amount of $22,712. Petitioner was awarded the disability retirement income under pre-2013 LAAC section 4.1055(a); the disability retirement income in issue was paid by 1 2 3 4 5 6 7 8 9 10 LACERS in 2014 pursuant to post-2013 LAAC section 4.1008. 11 Petitioner's disability pension was determined to be 33 12 percent of her salary, pursuant to a formula under which a 13 disability pension is computed as a percentage of final 14 compensation equal to the greater of (1) 1/70 times the 15 applicant's years of service or (2) 33 percent. 16 17 18 19 20 21 22 23 24 LACERS reported these distributions to the Internal Revenue Service (IRS). On her 2014 Federal income tax return petitioner reported these distributions as part of her total pensions and annuities but did not report these distributions as part of her taxable pensions and annuities. In the notice of deficiency, respondent determined that the distributions from LACERS should be included in petitioner's 2014 gross income. Consequently, by notice of deficiency respondent determined a $1,448 25 deficiency in petitioner's 2014 Federal income tax. (973)406-2250|operationscescribersnet]www scribersmet 6 While residing in California, petitioner timely petitioned this Court. The issue for decision is whether the disability retirement payments petitioner received from LACERS are properly excluded from petitioner's gross income under section 104(a)(1). We hold that they are not. OPINION The Commissioner's determinations in a notice of deficiency are generally presumed correct, and the taxpayer bears the burden of proving those determinations erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Petitioner does not contend that the burden 1 2 3 4 5 6 7 8 9 10 11 12 of proof should shift to respondent under sections 6201(d) 13 14 or 7491(a); nor has she introduced any evidence to support such a burden shift. Petitioner therefore has the burden 15 of proof. 16 17 18 19 20 21 22 Section 61(a) provides that gross income includes "all income from whatever source derived". "An accession to wealth * * * is presumed to be taxable income, unless the taxpayer can demonstrate that it fits into one of the Tax Code's specific exemptions." Hawkins v. United States, 30 F.3d 1077, 1079 (9th Cir. 1994). Petitioner admits that she received the LACERS 23 distributions at issue. She contends, however, that these 24 25 amounts are excluded from her gross income under section 104(a). cribers $73)406-2250|operationscescribersnet|wwwescribers.net Section 104(a)(1) specifically excludes from 7 gross income "amounts received under workmen's compensation acts as compensation for personal inJurles or sickness". Under the regulations, this exclusion extends to amounts received by an employee "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." Sec. 1.104-1(b), Income Tax Regs. The exclusion does not apply 1 2 3 4 5 6 7 8 9 10 "to the extent the payments are determined by reference to 11 the employee's age or length of service or the employee's 12 prior contributions, even if the employee's retirement is 13 occasioned by occupational injury." Sewards v. 14 Commissioner, 138 T.C. 320, 322 (2012), aff'd, 785 F.3d 15 16 1331 (9th Cir. 2015); sec. 1.104-1(b), Income Tax Regs. Thus, income is excluded under section 104(a)(1) 17 only if the income was paid pursuant to a workmen's 18 compensation statute or a statute in the nature of a 19 workmen's compensation act. "Statutes that do not 20 21 22 restrict the payment of benefits to cases of work-related injury or sickness are not considered to be 'workmen's compensation acts' under section 104." Take v. 23 Commissioner, 804 F.2d 553, 557 (9th Cir. 1986), aff'g 82 24 T.C. 630 (1984). The relevant question is not whether the 25 taxpayer's illness might have been work-related but (973)406-2250|operationsgescribersmet|www.escribersaet whether the statute under which the taxpayer receives benefits qualifies for section 104 treatment. Id. at 558. 8 Neither pre-2013 LAAC section 4.1055 nor post- 2013 LAAC section 4.1008 is a workmen's compensation statute or a statute in the nature of workmen's compensation. Under each of these statutes, disability retirement is allowed for "[a]ny member who has five or more years of continuous service and who has become physically or mentally incapacitated and who is incapable, as a result thereof, of performing his or her duties". Thus, neither statute restricts the payment of disability retirement payments to cases of work-related injury or sickness. Moreover, both statutes determine an employee's 1 2 3 4 5 6 7 8 9 10 11 12 13 14 disability retirement income by reference to "his or her 15 16 accumulated contributions" and "the number of years of service of such member." Therefore, the disability 17 retirement income petitioner received is not excluded from 18 petitioner's gross income under section 104(a). See sec. 19 20 1.104-1(b), Income Tax Regs. In her pretrial memorandum petitioner cites 21 Private Letter Ruling (PLR). PLR 7609230220A (Sept. 23, 22 1976) (the so-called Ventura ruling). PLRs, however, are 23 not precedential and may not be used or cited as such. 24 Section 6110(k)(3). In any event, the PLR at issue is 25 distinguishable from the instant case; although the PLR FB)406-2250|operationseescribersnet|wwyr.escribers.net 9 does state that "[t]he provisions in the County Retirement Law providing for disability retirement in the case of service-connected sickness or injury constitute a statute 'in the nature of a workmen's compensation act' within the meaning of section 104(a)(1)" the law to which the PLR refers provides that "any member permanently incapacitated for performance of duty shall be retired for disability regardless of age if, and only if, his incapacity is a result of injury or disease arising out of and in the course of his employment." Thus, petitioner's reliance on the PLR is misplaced. Petitioner also argues that the disability retirement income was paid pursuant to a statute in the nature of workmen's compensation because LACERS allowed 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 her to file a disability claim after the usual filing 16 deadline had passed. But the tolling of a deadline to 17 18 19 20 21 file a disability claim does not transform a statute which otherwise is not in the nature of workmen's compensation into one that is -- specifically it does not alter the fact that the relevant statutes provide the disability retirement benefits irrespective of whether the disability 22 was service-related and that the payment amounts are paid 23 with reference both to an applicant's prior contributions 24 25 and length of service. Furthermore, the tolling of the deadline is not premised on a successful worker's (973)406-2250|operationseescribersnet{www.escnbersmet 10 compensation claim and instead only requires a claim that is "accepted, open and related." Petitioner contends that because her disability pension was determined under a formula that yielded a benefit of 33% of her final compensation, it was not "determined by reference to the employee's age or length of service or the employee's prior contributions" within the meaning of section 1.104-1(b), Income Tax Regs. As respondent points out, however, petitioner's disability payments were in fact determined by reference to length of service, both under the applicable formula, which determines an applicant's disability pension by reference to length of service, as well as under pre-2013 LAAC section 4.1055 and post-2013 LAAC section 4.1008 LACERS, 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 which each required that an applicant have five years of 16 continuous service to be eligible for a disability 17 benefit. 18 19 We conclude that the distributions petitioner received from LACERS were not paid under a statute that 20 qualifies for section 104 treatment. Consequently, 21 petitioner is not entitled to exclude these distributions 22 from her gross income. We sustain respondent's 23 determination in the notice of deficiency. 24 25 Decision will be entered for respondent. This concludes the Court's findings of fact and cribers (973)406-2250|operationseescribersnetlwwvr.escribers.net opinion in this case. 11 (Whereupon, at 8:56 a.m., the above-entitled matter was concluded.) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 cribers 73)406-2250|operations@escribersnetlwww.esaibers.net