TAX COURT OPINION

Case: Jerry Efford & Yueh Hui Walker
Docket Number: 23654-07S
Judge: Colvin
Opinion Type: bench
Filed: 01/29/2009
Pages: 10

UNITED STATES TAX COURT WASHINGTON, D .C . 2021 7 JERRY EFFORD AND YUEH HUI WALKER, Petitioners , V . Docket No . 23654-07 S COMMISSIONER OF INTERNAL REVENUE, Respondent . O R D E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it i s ORDERED that the Clerk of the Court shall transmit herewith to petitioners and to respondent a copy of the pages of the transcript of the trial of the above case before Special Trial Judge Lewis R . Carluzzo at Tallahassee, Florida, on January 13, 2009, containing his oral findings of fact and opinion rendered at the conclusion of trial . In accordance with the-oral findings of fact and opinion, decision will be entered for respondent with respect to the deficiency and for petitioners with respect to the section 6662(a) accuracy-related penalty . (Signed ) Lewis R. Carluzzo Special Trial Judg e Dated : Washington, D .C . January 29, 2009 SERVED Jan 30 2009 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 3 Bench Opinion by Special Trial Judge Lewis R . Carluzz o Walker v . Commissioner Docket No . 23654-07S January 13, 2009 THE COURT : The Court has decided to rende r oral findings of fact and opinion in this case, an d the following represents the Court's oral findings o f fact and opinion . The oral findings of fact and opinion shall not be relied upon as precedent in an y other case . This proceeding for the redetermination of a deficiency is a Small Tax Case conducted pursuant t o the provisions of section 7463 of the Internal Revenue Code of 1986, as amended, and Rules 170 through 175 o f the Tax Court Rules of Practice and Procedure . This bench opinion is made pursuant to th e authority granted by section 7459(b) of the Interna l Revenue Code of 1986, as amended, and Rule 152 of the . Tax Court Rules of Practice and Procedure . Hereinafter in this bench opinion, unles s otherwise specified, section references are to th e Internal Revenue Code of 1986, as amended, in effec t for 2005 . Rule references are to the Tax Court Rule s of Practice and Procedure . Jerry Efford Walker appeared pro se . W . Benjamin McClendon appeared on behalf of Respondent . Heritage Reporting Corporation (202) 628-4888 4 1 In a notice of deficiency dated August 13 , 2 2007, Respondent determined a $10,689 .00 deficiency in 3 Petitioner's 2005 Federal income tax and imposed a 4 $2,138 .00 section 6662(a) penalty . The issues fo r 5 decision are : (1) Whethera $45,900 .00 distribution 6 from UNUM Life Insurance Company (UNUM) received by 7 Jerry Efford Walker (Petitioner) during 2005 i s includable in Petitioner's 2005 income' and (2 ) 9 whether Petitioners are liable for a section 6662(a) 10 penalty . 11 Some of the facts have been stipulated an d 12 as so found . At the time the petition was filed, 13 Petitioners resided in Florida . 14 Over the years Petitioner has suffered with 15 chronic back, leg, shoulder and neck pain due, a t 16 least in part, to a degenerative joint disease . His 17 condition is attributable to a variety of source s 18 including injuries sustained while in the U .S . Ai r 19 force (1971 - 1991), and a slip and fall at a Wal-Mart 20 store in 1999 . 21 In 1998 Petitioner began working as a Ground, 22 Training . Instructor for Emery Worldwide Airline s 23 (EWA), a position that required him to hold an Air 24 Pilot certificate issued by the Federal Aviatio n 25 Agency (FAA) . At all times relevant , E was a U-2 ,ZA Heritage Reporting Corporation (202) 628-4888 5 1 subsidiary of CNF Transportation (CNF) . As an 2 employee of EWA, Petitioner was covered by disability 3 insurance offered through UNUM to EWA employees (the 4 disability insurance) . Petitioner did not contribute 5 towards the cost of the disability insurance, and no 6 part of that insurance paid by EWA or any other party 7 was includable in his income for any year . 8 In May, 2001 Petitioner was placed o n 9 medical leave, presumably due to his back problems . 10 He became eligible for disability insurance benefits 11 on July 24 or 25, z20,0-5 ; and was approved for benefit s 12 on December 12, 2001 . 13 Petitioner's disability benefits through the 14 disability insurance came in the form of monthl y 15 payments made to him by UNUM . The payments wer e 16 computed not with reference to the nature or cause of 17 Petitioner's disability, but with reference to hi s 18 salary as an EWA employee at the time of hi s 19 disability . During 2005, those payments totaled 20 $45,900 .00 (the UNUM distribution) . 21 As a result of actions taken against EWA by 22 the FAA, EWA flights were grounded as of August 13 , 23 2001 . By resolution adopted as a result of a November 24 29, 2001 meeting of EWA's board of directors, EWA' s 25 managers were directed to 'take such actions as are Heritage Reporting Corporatio n (202) 628-4888 6 1 necessary for the immediate and permanent cessation of 2 commercial air carrier flight operations" . 3 In September, 2002, CNF created the CNF , 4 Inc . Long Term Disability Plan 2000 Reinstatement (the 5 disability plan) . By design the disability pla n 6 allowed disabled EWA employees to continue receivin g 7 disability benefits, although the terms and conditions 8 for coverage might have varied from those originally 9 negotiated for between EWA and the Air Line Pilot s 10 Association, International (ALPA) . 11 Petitioners' joint 2005 Federal income tax 12 return was timely filed . The UNUM distribution i s 13 disclosed on a statement included with the return, but 14 the distribution is not taken into account in th e 15 computation of Petitioners' 2005 adjusted gross 16 income . In the notice of deficiency Respondent 17 increased Petitioners' income by the UNU M 18 distribution . Respondent also imposed a penalty under 19 section 6662(a) . Other adjustments made in the notice 20 of deficiency are either not in dispute or agreed upon 21 between the parties . 22 Petitioners agree that the UNUM distribution 23 was received, but argue that it is excludable fro m 24 income pursuant to certain provisions of section 104 25 or section 105 . In the alternative, they argue that Heritage Reporting Corporatio n (202) 628-4888 7 1 the UNUM distribution is excludable from their income 2 as a 'gift" . Respondent argues that section 104 i s 3 not applicable and that the relevant provisions of 4 section 105 require Petitioners to include the UNUM 5 distribution in their 2005 income . Ignoring th e 6 characterization of the payments to Petitioner as 7 'wages" in the notice of deficiency, we agree with 8 Respondent . 9 Section 61(a) provides generally and broadly 10 that gross income includes all income from whateve r 11 source derived . Furthermore, the term 'income" as 12 used in the Internal Revenue Code, means an y 13 undeniable accessions to the wealth of the taxpayer . 14 Commissioner v . Glenshaw Glass Co . , 348 U .S . 42 6 15 (1955) . The UNUM distribution clearly represents an 16 accession to Petitioners' wealth and is therefor 17 included in Petitioners' 2005 income unless otherwise 18 excluded . Exclusions from gross income, on the other 19 hand, must be specifically provided for and ar e 20 narrowly construed . Commissioner v . Schleier , 51 5 21 U .S . 323, 328 (1995) ; Kovacs v . Commissioner , 100 T .C . 22 124, 128 (1993), affd . without published opinion 25 23 F .3d 1048 (6th Cir . 1994) . 24 Section 104(a)(3) provides, in relevan t 25 part, that amounts received through accident or health Heritage Reporting Corporatio n (202) 628-4888 8 1 insurance for personal injuries or sickness ar e 2 excludable from a taxpayer's income unless the amounts 3 received by a taxpayer/employee are attributable t o 4 contributions by the taxpayer's employer which were 5 not includable in the taxpayer/employee's income . 6 Section 105(a) restates this principle only in th e 7 context of amounts that are specifically includable in 8 a taxpayer's income . 9 According to Respondent, the exclusio n 10 provided by section 104(a)(3) does not apply because 11 the UNUM distribution is attributable to amount s 12 contributed by Petitioner's employer which were not 13 includable in Petitioner's income . Respondent argues 14 that the flush language of section 105(a) applies, and 15 for the reasons set forth in Respondent's well- 16 reasoned memorandum filed in connection with the 17 Respondent's cross motion for summary judgment (which 18 motion, as well as Petitioner's motion for summar y 19 judgment, will be denied on procedural grounds under 20 separate orders), we agree . We could repea t 21 Respondent's analysis here, but doubt that we could 22 improve upon it . 23 Suffice it to note that the position s 24 advanced by Petitioners intertwine what appears to be 25 complicated labor disputes with relatively straight Heritage Reporting Corporation (202) 628-4888 9 1 forward Federal income tax questions . We, of course, 2 are concerned only with the latter and, to the extent 3 it becomes necessary, leave it to another court t o 4 resolve questions relating to Petitioner's employment 5 status or rights . With respect to that employmen t 6 status, we note that Petitioners' position that 7 Petitioner was not an employee of CNF appears t o 8 conflict with his claim that CNF was the alter ego of 9 EWA, a claim made in a July 30, 2006 letter to th e 10 president of ALPA . 11 Be that as it may, for Federal income tax 12 purposes, as pointed out by Respondent, Petitioner's 13 "employer" is sufficiently identified in the operative 14 plan documents and it matters not that the UNU M 15 distribution might have been made under a different 16 disability plan than the one in place for EWA 17 employees at the time Petitioner applied and qualified 18 for disability benefits . 19 The UNUM distribution is attributable to 20 contributions made by Petitioner's "employer" which 21 contributions were not includable in his income . The 22 exclusion provided by section 104(a)(3) therefor does 23 not apply . Instead, the provisions of section 105(a) 24 do . Furthermore, Petitioners' reliance upon section 25 105(c) is misplaced . That section does not appl y Heritage Reporting Corporation (202) 628-4888 1 0 1 because it is clear that the UNUM distribution wa s 2 computed with reference to Petitioner's earnings as an 3 EWA employee and not with reference to the nature o f 4 [his] injury without regard to the period [he] is 5 absent from work" . See section 105(c)(2) . 6 Lastly, we reject for reasons that must b e 7 obvious to anyone who would casually review the record 8 in this case, Petitioners' claim that the UNUM 9 distribution is excludable from income as a gift to 10 Petitioner . See section 102(a) . The UNUM 11 distribution hardly represents "detached an d 12 disinterested generosity" made "out of affection , 13 respect, admiration, charity, or the like" necessary 14 to be considered a gift . See Commissioner-v . 15 Duberstein , 363 U .S . 278, 285 (1960) ; see also section 16 102(c) . 17 Respondent's determination that the UNU M 18 distribution is includable in Petitioners' 2005 income 19 is sustained . 20 Respondent also imposed a section(62(a) 21 penalty for 2005 . Alternative grounds for th e 22 imposition of this penalty are provided in the notice 23 of deficiency, but we see no need for a length y 24 discussion on those grounds . Under the circumstances 25 we are satisfied that-the imposition of the penalty is Heritage Reporting Corporatio n (202) 628-4888 1 1 not appropriate . See section 6662.(d)(2)(B) and 6664 (c) . To reflect the foregoing, decision will b e entered for Respondent with respect to the deficienc y and for Petitioners with respect to the sectio n 6662(a) penalty . This concludes the Court's oral findings o f fact and opinion . (Whereupon, at 12 :31 p .m ., the bench opinio n in the above-entitled matter was concluded . ) 1 2 3 4 5 6 7 8 9 10 1 1 12 13 14 15 1 6 1 7 1 8 1 9 2 0 2 1 22 23 24 25 // Heritage Reporting Corporation (202) 628-4888