TAX COURT OPINION

Case: Jorge A. Pagan & Edna V. Pagan
Docket Number: 27994-14
Judge: Laro
Opinion Type: bench
Filed: 01/21/2016
Pages: 5

UNITED STATES TAX COURT WASHINGTON, DC 20217 JORGE A. PAGAN & EDNA V. PAGAN, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 27994-14. ) ) ) ) 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 petitioners and to respondent a copy of the pages of the transcript of the trial in the above case before Judge David Laro at Los Angeles, California, containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, a decision will be entered for respondent. (Signed) David Laro Judge Dated: Washington, D.C. January 21, 2016 SERVED JAN 2 7 2016 Capital Reporting Company 3 1 2 3 4 5 Bench Opinion by Judge David Laro December 18, 2015 Jorge A. Pagan and Edna V. Pagan Docket No. 27994-14 THE COURT: The Court has decided to render 6 Oral Findings of Fact and Opinion in this case, and 7 8 the following represents the Court's oral findings of fact and opinion. The Oral Findings of Fact and 9 Opinion shall not be relied upon as precedent in any 10 11 12 13 14 15 16 17 18 19 20 21 22 other case. This bench opinion is made pursuant to the authority granted by Section 7459(b) and Rule 152. Unless otherwise indicated, section references are to the Internal Revenue Code, and t e rule references are to the Tax Court Rules of Practice and Procedure. The dollar amounts are rounded to the nearest dollar. In a notice of deficiency mailed on September 15, 2014, respondent adjusted petitioners' taxable income for t e 2012 tax year to reflect taxable previously unreported taxable interest income in the amount of $86,96, an overpaid mortgage ÚL interest refund in the amount of $98,96, and Social 23 Security income in the amount of $19,045. 24 Petitioners timely petitioned this Court to challenge 25 those determinations. At trial, petitioners conceded 866.488.DEPO www.Capita1ReportingCompany.com 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 Capital Reporting Company that they are liable for the unreported interest income and overpaid mortgage interest refund. The sole issue we decide is whether petitioners should have reported th ir social security benefits received 4 during 2012 on their tax return. Background At trial on December 14, 2015, the parties file a stipulation of h facts with attached exhibits, 0L the facts of which are incorporated herein by this reference. Petitioners were married and timely filed their joint Form 1040, U.S. Índividual Íncome Iax keturn for tax year 2012. At the time of filing the L petition, petitioners resided in Houston, Texas. During 2012, petitioner Edna V. Pagan (Mrs. Pagan) received Social Security benefits payments in the amount of $3,540 and workers' compensation payments in the amount of $22,406. The workers' compensation payments were a direct offset to Mrs. Pagan's social security benefits. Petitioners did not report the $22,406 of the workers' compensation payments on their 2012 tax return because they believed that amount to be non-taxable. Petitioners did report $3,540 in social security benefits. Discussion Workers' compensation is generally 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 excludable from a taxpayer's gross income. Sec. 104(a)(1). In contrast, Social Security benefits, including Social Security disability benefits, may be includable in a taxpayer's gross income. Sec. 86. Section 86 defines such benefits as any amount receivable by the taxpayer by reason of entitlement to a monthly benefit under the Social 8 Security Act. Sec. 86(d) (1) (A). Taxable Social 9 Security benefits include the amount of the workers' 10 11 12 compensation payment to the extent that they reduce or offset the total social security benefits to which the recipient is entitled. Sec. 86(d)(3); see 13 Mikalonis v. Commissioner, T.C. Memo. 2000-281; 14 Willis v. Commissioner, T.C. Memo. 1997-290. 15 16 17 18 19 20 21 22 23 24 25 Petitioners argue that they never actually received the $22,406 of the workers' compensation offset. At trial, petitioners also introduced a decision entered by this Court pursuant to the settlement agreement between the parties in case with the Docket No. 24854-08S. Petitioners argue that this prior case was based on similar facts, but the IRS agreed to a settlement. As such, we are not bound by the decision entered in that case. As the Supreme Court of the United States has instructed, we are dutybound to apply the law as 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 written by Congress to the facts as they occurred. 2 See Commissioner v. National Alfalfa Dehydrating & 3 Milling Co., 417 U.S. 134, 148-149 (1974). Because 4 Mrs. Pagan's Social Security benefits were reduced by 5 6 the amount of workers' compensation benefits received, that offset amount is treated as a Social 7 Security benefit and is, therefore, taxable. See h\_ 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Sec. 86(d)(3). Accordingly, we sustain respondent's determination that the $19,045 of the workers' compensation offset, which represents 85% of the total workers' compensation offset for 2012, is includable in petitioners' taxable income for 2012 under Section 86(d)(3) as a social security benefit. DL We have considered all of the arguments made by petitioners, and, to the extent that we have not specifically addressed them, we conclude that they do not support a result contrary to that reached herein. To reflect the foregoing, the decision will be entered for respondent. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 9:30 a.m., the above- entitled matter was concluded.) 866.488.DEPO www.Capita1ReportingCompany.com