TAX COURT OPINION

Case: John H. & Claudia M. Townsend
Docket Number: 2882-10S
Judge: Colvin
Opinion Type: bench
Filed: 07/02/2010
Pages: 8

UNITED STATES TAX COURT WASHINGTON , DC 2021 7 JOHN H . AND CLAUDIA M . TOWNSEND , Petitioner s v . ) Docket No . 2882-10S . 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 in the above case before Judge L . Paige Marvel at Memphis, Tennessee, on June 24, 2010, containing her oral findings of fact and opinion rendered at the conclusion of the trial . In accordance with the oral findings of fact and opinion, decision will be entered for respondent . (Signed) L . Paige Marvel Judge Dated : Washington, D .C . July 2, 2010 SERVED JUL -- 6 2010 1 Bench Opinion by Judge L . Paige Marvel June 24, 201 0 2 Townsend v . Commissioner Docket No . 2882-1O S 3 THE COURT „ THE COURT HAS DECIDED TO RENDER 4 ORAL FINDINGS OF FACT AND OPINION IN THIS CASE, AN D 5 THE FOLLOWING REPRESENTS THE COURT ' S ORAL FINDINGS OF 6 FACT AND OPINION . THE ORAL FINDINGS OF FACT AND 7 OPINION ( HEREINAFTER BENCH OPINION ) SHALL NOT BE 8 RELIED UPON AS PRECEDENT IN ANY OTHER CASE . 9 This case was heard pursuant to the 10 provisions of section 7463 of the Internal Revenue 11 Code in effect at the time the petition was filed . 12 Pursuant to section 7463 ( b), the decision to b e 13 entered is not reviewable by any other court . 14 This Bench opinion is rendered pursuant to 15 section 7459 ( b), Internal Revenue Code, and Rule 152, 16 Tax Court Rules of Practice and Procedure . Unless 17 otherwise indicated , all section references in thi s 18 opinion are to the :Internal Revenue Code in effect for 19 the relevant period, and all Rule references are t o 20 the Tax Court Rules of Practice and Procedure . 21 By statutory notice of deficiency date d 22 November 2, 2009, respondent determined an income tax .23 deficiency of $2,585 with respect to petitioners' 2007 24 taxable year . Petitioners timely conteste d 25 respondent ' s determination by filing a petition i n Heritage Reporting Corporation (202) 628-4888 4 1 this Court . On the date petitioners filed their 2 petition, they resided in Tennessee . 3 The soli' issue for decision is whether all G 4 or part of a lump-sum payment of Social Securit y 5 benefits received by petitioner husband in 2007 should 6 have been included as taxable income on petitioners ' 7 2007 Federal income tax return . A trial was held on 8 June 21, 2010, in Memphis, TN at which petitione r 9 husband testified . Petitioner husband represented to 10 the Court that he was authorized to represen t 11 petitioner wife, who was not present at trial . 12 Respondent was represented by John Bampfield . 13 FINDINGS OF FACT 14 All of the relevant facts have bee n 15 stipulated . The stipulations of fact are incorporated 16 herein by this reference . 17 In 1991 petitioner husband began 18 participating in a long-term disability plan through 19 his employer, A .G . Edwards . A .G . Edwards, in turn, 20 insured the long-term disability plan through a n 21 insurance policy written by MetLife Insurance Co . 22 (MetLife) . The policy was paid for by payrol l 23 deductions Le em petitioner husband's wages . Under the ~-4Y1 24 plan contract, the amount of benefits paid through the 25 plan is reduced by an amount equal to any other Heritage Reporting Corporation (202) 628-4888 5 1 benefits paid to the covered employee for the same 2 disability . The plan contract also requires the 3 covered employee to apply for any and all benefits to 4 which he may be entitled by virtue of a long-ter m 5 disability . 6 Petitioner husband became disabled in April 7 2006 and began to receive benefits from his long-term 8 disability plan approximately 90 days thereafter . In 9 the fall of 2007 petitioner husband qualified fo r 10 Social Security benefits for his disability, and he 11 received a lump - sum disability benefit payment o f 12 $24,589 .87 from the Social Security Administration in 13 2007 . 14 On December 7, 2007, petitioner husband 15 wrote a check to MetLife in the amount of $24,589 .87, 16 which represented the reimbursement of th e 17 corresponding reduction of benefits paid through the 18 long-term disability plan . 19 Although petitioners reported receiving some 20 Social Security benefits on their 2007 Federal income 21 tax return ( 2007 return), petitioners did not include 22 _ any part of the lump - sum disability benefit paymen t 9A 05S Lim 23 from the Social Security Administration in th e 24 income they reported on their 2007 return . 25 Petitioners contend that the lump-sum Social Securit y Heritage Reporting Corporation (202) 628-4888 L 6 1 disability payment petitioner husband received was no t 2 taxable because petitioner husband "was never in legal 3 constructive receipt of the money ." Petitioner s 4 assert that the lump-sum Social Security disability 5 benefit payment "legally belonged to MetLife under a 6 disability contract integrated with Social Security ." 7 DISCUSSION 8 Section 61(a) provides that gross income 9 includes all income from whatever source derived , 10 unless excludable by a specific provision of the Code . 11 Section 86 requires the inclusion in gross income of 12 up to 85 percent of Social Security benefits received, 13 and section 86 ( e) establishes special rules where the 14 taxpayer receives lump - sum Social Security benefits . 15 Social Security benefits means any amount received by 16 the taxpayer by reason of entitlement to a monthl y 17 benefit under title II of the Social Security Act, 42 18 U . S . C . secs . 401-434 ( 2006 ) . Sec . 86(d) (1) (A) . Title 19 II of the Social Security Act provides disabilit y 20 insurance benefits to every individual who is insured 21 for disability insurance benefits , has not attained 22 retirement age, has filed an application fo r 23 disability insurance benefits , and is under a 24 disability . See 42 U .S .C . sec . 423 ( a)(1) (2006) . 25 Accordingly , Social Security disability benefits ar e Heritage Reporting Corporation (202) 628-4888 7 1 generally includable in gross income, and the amoun t 2 so includable is calculated under a formula prescribed 3 in section 86 . 4 Petitioners contend that the lump-sum Social 5 Security disability payment is not taxable income t o 6 them . Petitioners point out that upon receipt of the 7 lump-sum Social Security payment petitioner husban d 8 was obligated to reimburse MetLife for the 9 corresponding reduction of benefits paid through the 10 long-term disability plan . Accordingly, petitioners 11 maintain that petitioner husband never constructively 12 received the lump-sum Social Security disabilit y 13 payment and was not its legal recipient . We disagree . 14 Generally, under the so-called anticipatory 15 assignment of income doctrine, "A taxpayer canno t 16 exclude an economic gain from gross income by 17 assigning the gain in advance to another party . " 18 19 Commissioner v . Ban ks, 543 U .S . 426, 433 (2005) ; Lucas v . Earl , 281 U .S . 1 :L1, 114 (1930) . As follows from 20 this doctrine, absent an express statutory exclusion 21 from gross income, the taxpayer may not avoi d 22 including an economic gain in gross income when he is 23 contractually obligated to pay the amount over to a 24 third party . Cf . Commissioner v . Banks , supra at 433 . 25 In this case the long-term disability pla n Heritage Reporting Corporation (202) 628-4888 8 1 entitled petitioner husband to payments only to the 2 extent he did not receive (among other benefits ) 3 Social Security benefits . In other words, the long- 4 term disability plan required petitioner to exhaust 5 all other benefits to which petitioner husband might 6 be entitled on account of his disability befor e 7 MetLife was obligated to make benefit payments . 8 Because petitioner husband qualified for Socia l 9 Security benefits more than 1 year after becoming 10 disabled and starting to receive benefits from his 11 long-term disability plan, upon receipt of the lump- 12 sum Social Security benefit, petitioner wa s 13 contractually obligated under the long-term disability 14 plan to remit the payment to MetLife as a 15 reimbursement of the corresponding reduction of 16 benefits paid . As discussed above, lump-sum Social 17 Security disability benefits generally are includabl e 18 in income, as calculated under a formula and subject tl,e . 19 to limitations of section 86(e) (addressing limitation L PM 20 on amount included where the taxpayer receives a lump- 21 sum payment) . See sec . 86 . Because Social Security 22 disability benefits paid to petitioner husband ar e 23 includable in income, the receipt thereof in a lump- 24 sum and the obligation to reimburse MetLife do no t 25 affect the includability of Social Security disabilit y Heritage Reporting Corporation (202) 628-4888 9 1 benefits in gross income under section 86(a) . We 2 sustain respondent's determination . 3 CONCLUSION 4 The parties stipulated that, in the event 5 the . Court determines the Social Security benefits at 6 issue are taxable, then respondent correctl y 7 calculated the increase to petitioners' income in the 8 notice of deficiency . Consequently, no computatio n 9 under Rule 155 is necessary . Decision will be entered 10 for respondent . 11 THIS CONCLUDES THE COURT'S ORAL FINDINGS OF 12 FACT AND OPINION IN THIS CASE . 13 (Whereupon, at 4 :00 p .m ., the bench opinion 14 in the above-entitled matter was concluded . ) 15 16 17 18 19 20 21 / / 22 23 24 / / 25 Heritage Reporting Corporation (202) 628-4888