TAX COURT OPINION

Case: Estate of Lucille G. Stanton, Deceased; John L. Flynn, Executor
Docket Number: 1235-06S
Judge: Colvin
Opinion Type: bench
Filed: 01/15/2009
Pages: 12

UNITE[) STATES TAX COURT WASHINGTON, DC 2021 7 ESTATE OF LUCILLE G . STANTON, DECEASED, JOHN L . FLYNN, BXECUTOR , Petitione r v . Docket No . 1235-06S . COMMISSIONER OF INTERNAL REVENUE, ) Responden t O R D E R Pursuant to Rule 152 (b), Tax Court Rules of Practice an d 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 hearing of the above case before Special Trial Judge Robert N . Armen, Jr . at Jacksonville, Florida on November 18, 2008, containing his oral findings of fact and opinion rendered at the conclusion of the hearing . In accordance with the oral findings of fact and opinion, and Order and Decision wiill,be entered for respondent . (Signed ) Robert N . Armen, Jr. Special Trial Judg e Dated : Washington, D .C . January 15, 2009 SERVED JAN 21 200( 3 1 Bench Opinion by Speclial Trial Judge Robert N . Armen Jr . 2 November 18, 200 8 3 Stanton v . Commissioner Docket No . 1235-06 S 4 THE COURT : I . The Court has decided to render 5 oral findings of fact and opinion in this case, and th e 6 following represents he Court's .oral findings of fact and 7 opinion . The oral fi dings of fact and opinion shall not b e 8 relied'Qas-precedent in any other case . 9 II . This-proceeding was heard as a Small'Tax Case -10 pursuant to the provi ions of Section 7463 of the Internal 11 Revenue Code of 1986, as . amended, and Rules 170 through 175 12 of the Tax Court Rules of Practice and Procedure . 13 III . This ~ench opinion is made pursuant to the 14 authority granted by Section 7459(b) of the Internal Revenue 15 Code of 1986, as amended, and Rule 152 of the Tax Cour t 16 Rules of Practice and Procedure . 17 _ Hereinafter in this bench opinion, and unles s 18 otherwise indicated, .all section numbers refer to the 19 Internal Revenue Code as amended and in effect for 2003 , 20 the taxable year in i sue, and all rule numbers refer to th e 21 Tax Court Rules of Practice and Procedure . 22 IV . John L Flynn, Executor of the Estate o f 23 Lucille G . Stanton, Deceased, appeared on behalf of the 24 Estate . Joel D . McMahan appeared on behalf of th e 25, Respondent . Heritage Reporting Corporation 1 (202) 628-4888 h 4 1 V . This matter is before the Court on th e 2 parties' cross-motions for summary judgment, both of which 3 motions were filed pursuant to Rule 121 . Respondent filed 4 his Motion for Summa y Judgement on July 2, 2008, an d 5 Petitioner filed its Motion for Summary Judgment on July 17 , 6 2008 . 7 VI .' Prio r to her death, at the time the petitio n 8 was filed with the Court, Lucille G . Stanton resided in th e 9 State of New York . 1 0 .VII . Thi s case was commenced by Lucille'G . 11 Stanton on January 17 2006 . After her death in Decembe r 12 2007, Mrs . Stanton's state was substituted as th e 13 Petitioner . Referenc s to "petitioner" refer to either Mrs . 14 Stanton or her e state depending on the time- .perio d 15 involved . 16 VIII . Respondent determined a deficiency i n 17 Petitioner' s Federal income tax for 2003 in the amount of 18 $2,005 . The deficiency is attributable to Respondent's 19 disallowance-of Petitioner's exclusion from . income o f 20 payments she received from Citibank, N .A . ("Citibank") under 21 its Amendment and Restatement of Retirement Plan o f 22 Citibank, N .A ., and Affiliates (with an effective date . of 23 January 1, 1979, and thereinafter referred to as "the plan " 24 or "Citibank's retirement plan"), and subsequen t 25 recalculation of the taxable portion of Social Security Heritage Reporting Corporation (202) 628-4888 5 Benefits . 2 Despite the fact that Form 1099 - R Petitione r 3 received indicated teat the income was taxable , Petitione r excluded the $12,894 received under the plan because she 5 believed that the payments fell under the income exclusion provisions of Section 105(c) . Respondent concluded to th e 7 contrary and 'determied the deficiency in tax . IX . Although this case has had a long history, the essential facts necessary to a resolution of this cas e -10 are as follows : 11 Mrs . Stanton'-s husband, William J . Stanton, wa s 12 employed at Citibank in New York from about 1954 through the 13 fall of 1980 . In th fall of 1980, Mr . Stanton applied for 14 permanent disability retirement pursuant to Citibank' s 15 retirement plan . His application for disability retirement 16 was approved pursuant to Article III, Sec . 5, and Article 17 IV, Sec . 6 of the plan . 18 In January 1981, Mr . Stanton died from the sam e 19 severe illness that had caused his permanent disability . 20 Citibank continued making payments under the plan to Mrs . 21 Stanton after Mr . Stanton's death . 22 Petitioner argues that the payments Mrs . Stanton 23 received under the plan are excludable from income pursuant 24 to Section 105(c) because they stemmed from her husband's 25 permanent disability . Heritage Reporting Corporation (202) 628-4888 6 1 Respondent contends that Petitioner's situation 2 does not satisfy the requirements of Section 105(c) because : 3 (1) The Plan does not qualify as an "accident or health " 4 plan under Section 105 ; and (2) the payments received were 5 not "computed with reference to the nature of the injur y without regard to the period the employee is absent fro m 7 work, X . We note for the record that'Petitioner makes two other arguments in its Cross-Motion for Summar y 10 Judgment, neither of .which has merit, and we may dispose of 11, them briefly now . 12 First, theme is no requirement that an extremely .13 detailed explanation for an IRS change to a taxpayer' s 14 return be made in the notice of deficiency . See Sec . 15 7522 (a) . 16 The fact that the IRS did not provide a detailed 17 explanation as to why the Petitioner's receipt of the 18 payments under the plan were not excluded by Section 105(c) 19 did nothing to change the buren of proof in this case . See 20 Rule 142(a) ; Sec . 7491 . - 21 Further, to the extent that Petitioner's arguments 22 rely on burden of proof, it is clear that such argument s 23 would preclude the granting of Petitioner's . motion a s 24 discussed later in this opinion . In any event, as we shall 25 discuss, burden of p +of plays no part in our disposition of Heritage Reporting Corporatio n (202) 628-4888 the cross-motions before us . Second , is well established that each tax year stands on its own . ee United States v . Skelly Oil Co . , 394 ' U .S . 678, 684 (19.69 )' Rose v . Commissioner , 55 T .C . 28, 32 (1970) . The fact th t Respondent may not have pursued the Section 105(c) issue on examination for some prior year or 7 years is of no-conse uence and has absolutely no effect o n 2003, the year in is ue . Indeed, Petitioner may-have received a n 10 unjustified windfall in prior years . In any event, those 11 years are not before us, and what may have happened then on 12 audit is irrelevant to the matter now before us . 13 XI . . Summa ;y judgment is intended to expedite 14 litigation and avoid unnecessary and expensive trials . Fla . - 15 Peach Corp . v . Commissioner , 90 T .'C . 678, 681 (1988) . .16 Summary judgment may be granted with respect to all or any 17 part of . the legal issues in controversy "if the pleadings, 18 answers to interroga ories, depositions, admissions, and any 19 other acceptable .matorials, together with the affidavits, if- .20 any, show that there is no genuine issue as to any materia l 21 fact and that a decision may be rendered as a matter of 22 law ." Rule 121(a) ad (b) ; Sundstrand Corp . v .- 23 Commissioner , 98 T .C . 518, 520 (1992), affd .- 17 F .3d 96 5 24 (7th Cir . 1994 ) 25 The moving party bears the burden or proving .that Heri tage Reporting Corporatio n (202) 628-4888 there is no genuine ~ssue of material fact, and factua l inferences will be read in a manner most favorable to the party opposing summa~y judgment .. See Dahlstrom v . Commissioner , 85 T . C 812, 821 .(1.985) ; Jacklin v . Commissioner , 79 T .C 340, 344 (1982) . Further, R rle 121(d) provides in pertinent part a s follows : "When a motion for summary judgment is made and 9 supported as provid e in this Rule, an adverse party may not 10 rest upon the mere allegations or denials of such party's 11 pleading ,' but such p rty's responses , by affidavits or as 12 otherwise'provided i this Rule , . must set forth . specific 13 facts showing that t4ere is a genuine issue for trial . I f 14 the adverse party does not so respond , then a decision, if 15 appropriate , may be ntered against such party ." . 16 After care ally reviewing this record, we ar e 17 satisfied that there is no genuine issue as to any material 18 fact in this case , and that a decision may be rendered as a 19 matter of law . Accordingly , we shall grant Respondent' s 20 Motion for Summary J'iu .dgment and deny Petitioner' s Cross- 22 XII . We t irn now to a discussion of the 23 substantive law that governs .the case . Gross income 24 includes income from whatever source derived unless a 25 specific exclusion applies . See generally Sec . 61 ; see Sec . Heritage Reporting Corporation (202) 628-4888 Section 105( a) and (c) provides that gross incom e does not'include amo nts received by an employee throug h accident or health insurance [emphasis added] to the extent those amounts : "(1) constitute payment for the permanent loss o r permanent disfigurement, of the taxpayer * * *, and puted with reference to the nature of 10 the injury without r'gard to the period the employee is 11 absent from work . " 12 See also s c : 105(e ) 13 Both parti s appear to agree that Mr . Stanton' s 14 illness and disability caused his death, and no one disputes 15 the fact that Mr . St .nton arguably fell under the provision s 16 of Section 1 .105-3, ncome Tax Regs . ._However,. more is 17 needed to satisfy th requirements of Section 105(c) . 18 : In other w rds, it is not merely a disability o r 19 illness that_is required for payments to be excludable . 20 Thus, we agree with Respondent's position--namely, that the 21 Citibank retirement ~lan is not "accident or healt h 22 insurance" and the payments received by Petitioner were 23 calculated without r Bard to the nature of Mr . Stanton' s 24 injury or the period he was absent from work . 25 "Generally, deferred compensation plans and Heritage Reporting Corporatio n (202) 628-488 8 compensation plans attempt to remunerate-an .employee * * Accident or health plans attempt to protect an employee fro m the expense and hardihip of illness or injury ." Berman v . 'other words, "an accident or health plan is a n arrangement for the ayment of amounts to employees in the event of personal in'ury or sickness", see Sec . 1 .105-5(a) , 10 Income Tax Regs ., an is a "form of insurance that pays for' 11 medical expenses * * * sometimes used more broadly t o 12 include insurance .co ering disability or long-term nursing 13 or custodial care ne ds . " 14 Http ://en .wikipedia . rg/wiki/ Healtlnsurance . 15 In contras , the plan under which Mrs . Stanton 16 received payments is a deferred compensation or retiremen t 17 plan, paying out amo nts earned and vested under the cours e 18 of employment with C itibank . .19 Petitioner argues that the plan is not merel y 20 retirement plan, but a dual purpose plan, "a retirement plan 21 for employees .who ar not disabled or dead and a [sic ] 22 accident or health p lan .for employees that are disabled " 23 Wefind this argument to be unconvincing and withou t 24 support . 25 Examining the four corners of,the :plan document , -He ri tage Reporting Corporation (202) 628-4888 1 1 1 we note first and fo 'emost that the sections under whic h 2 Mrs . Stanton receive payments are entitled "Disabilit y .3 Retirement Date" and "Disability Retirement Benefit" . Ther e 4 is nothing in the plain language of the plan or it s 5 applicable sections ~-o indicate that it is anything other 6 than a retirement pion . 7 Plan langu a ge that has been held indicative of a 8 dual-purpose intent includes a statement as such in the pla n 9 documents (absent in this case), specification that amount s 10 received for injury br illness are limited to the medica l 11 expenses incurred be ause of the injury or illness ( absen t 12 in this case ), or details about compensation for specific 13 injuries, such as the loss of use of a limb (also absent i n 14, this case) . See Caplin v . United States ., 718 F .2d 544, 54 9 15 (2nd Cir . 1983) . "While these and other like provisions ar e 16 not prerequisites to [a finding that a plan is] an acciden t 17 _or health plan, their absence plainly militates against a 18 . finding that [a.plan serves a dual purpose . " Caplin v . 19 United States , supra . 20 As has been explained in other courts, "al l 21 deferred compensatio plans which include 'disability' as an 22 event which may trigger distributions provide som e 23 additional protection in the case of injury or illness . A 24 deferred compensatio plan need not also have to be an 25 accident or health p an to achieve that goal ." Berman v . Heritage Reporting Corporatio n (202) 628-4888 12 1 Commissioner , supra at 939 . 2 It is also clear . from the applicable sections .. of 3 the plan .that the payments made to Mrs . Stanton were 4 disability retirement benefits, computed based on Mr . 5 Stanton'.s average co pensation .and the number of years of credited service wit h h the company . No reference in the plan is made to a 'scale based on the severity of a disability or calculations based or the length of time an employee is out , 9 of work ; the payment -in question thus could not have been -10 calculated with regaid to Mr . Stanton '. s illness o r 11 disability . See, e .g ., Beisler v . Commissioner , 787 F .2 d 12 1325, 1329 (9th Cir 1986) (explaining that amounts receive d 13 even under a dual purpose plan may be excluded only if the 14 amount received varies according to the type or severity o f 15 the injury suffered) . 16 Petitioner argues that it is not necessary that 17 the plan be in writing . See Sec . 1 .105-5(a), Income Tax 18 Regs . However, in this case, the fact that the Citibank 19 . retirement plan had specific,detailed, written provisions 20 for the retirement prt, yet none at all for the professed 21 accident .and health art, would appear to contradic t 22 Petitioner's dual pu:pose argument . . 23 Aside fro m the plan . language (or absence thereof) 24 of the plan, as well as relevant case law, the fact tha t 25 payments to Mrs . Stanton continued even after Mr . Stanton's Heritage Reporting Corporatio n 1 (202) 628-4888 1 3 1 death further indicates that the payments were not being 2 made as health insurance payments . Pensions continue t o 3 make payments after a worker dies, whereas health insurance 4 benefits do not continue beyond the illness of the insured . 5 "The mere fact that a disability results i n 6 premature retirement from .a company does not automatically 7 transform a deferred compensation plan into an accident or 8 health plan ." Berman v . Commissioner , supra at 940 . 9 Neither do naked assertions that the "size of Citibank' s -10 workforce confirm that Citibank had other employees who made' 11 claims under the Plan for accidents and sickness" . 12- The disability in this case merely triggered Mr . 13 Stanton's retirement, and it did not transform the payment s 14 received by Mrs . Stanton into the type of payments 15 excludable under Section 105(c) . 16 XIII . In order to give effect to our disposition 17 of the disputed issues, (1) Petitioner's Motion for Summary 18 Judgment,, filed July 17, 2008, will be denied ; (2 ) 19 Respondent's Motion for Summary Judgment, filed July 2 , 20 2008, will be granted ; and (3) decision will be entered for 21 Respondent . 22 This concludes the Court's oral findings of fact 23 and opinion in this case . 24 (Whereupon, at 1 :20 p .m ., the bench opinion in th e 25 above-entitled matterr' was concluded . ) Heritage Reporting Corporation j (202) 628-4888