TAX COURT OPINION

Case: Earl G. & Marilyn L. Lewis
Docket Number: 30107-08S
Judge: Colvin
Opinion Type: bench
Filed: 12/24/2009
Pages: 5

UNITED STATES TAX COURT WASHINGTON , D.C. 2021 7 EARL G . AND MARILYN L . LEW-IS, Petitioners , v . ) Docket,No . 30107-08S 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 toy petitioners . and to respondent a copy~of the pages of the transcript of the proceedings of the above case before Judge Diane L . Kroupa at San Diego, California, on October 29, 2009, containing her oral findings of fact and opinion . In accordance with the oral findings of fact and opinion, decision will be entered pursuant to Rule 155 .,, (Signed) Diane L. Kroupa Judg e Date : Washington, D .C . December 24, 2009 SERVED DEC 2 9 2009 i 2 1 Bench Opinion by Judge Diane L . Kroupa October 29, 2009 2 Earl G . & Marilyn L . Lewis Docket No . 30107-08S 3 THE COURT : The Court has decided to render . oral 4 findings of fact and opinion in this case, and the following 5 represents the Court's oral findings of fact and opinion . 6 These oral findings of fact and opinion shall not be relied 7 upon as precedent in any other case . 8 This case was heard as a'small tax pursuant to the 9 provisions of Section 7463 and Rules 170 through 175 . All 10 section references are to the Internal Revenue Code, a s 11 amended and in effect for 2006, referred to as the year at 12 issue, and all rule references are to the Tax Court Rules of 13 Practice and Procedure . 14 This bench opinion is made pursuant to the 15 authority granted in Section 7459(b) and Rule 152 . 16 Petitioners appeared pro se, and Chad Southall 17 appeared on behalf of Respondent . 18 FINDINGS OF FACT AND OPINIO N 19 Certain facts have been stipulated . The 20 stipulation of facts, with accompanying exhibits, i s 21 incorporated by this reference . The facts are so found . 22 Petitioners resided in California at the time they 23 filed the petition in this case . 24 This is a deficiency case in which Responden t 25 determined that Petitioners erroneously excluded 90 percent Heritage Reporting Corporation (202) 628-4888 3 1 of Mr . Lewis's military retirement pay as disabilit y 2 benefits under Section 104 . Respondent determined in the 3 deficiency notice that there was a $4,863 deficiency i n 4 Petitioners' federal income tax for 2006 that resulte d 5 primarily from Petitioners' treatment of the retirement pay . 6 Petitioners have conceded the cancellation of indebtedness 7 and gambling income issues for 2006 . 8 Petitioner Mr . Lewis was a POW for five years, and 9 sustained injuries for which he earned two Purple Hearts . 10 He was assigned a 90 percent disability factor as a result 11 of these injuries . Mr . Lewis retired from the Marines based 12 on his years of service rather than applying for a 13 disability pension, although he was eligible for bot h 14 classifications . He said he was too proud to claim he was 15 disabled . 16 Petitioner Mr . Lewis received $23,172 of military 17 retirement pay in 2006 from the Defense Finance and 18 Accounting Service based on his years of active duty service 19 and rank . Petitioners reported that amount on their return 20 under pensions and annuities, but only reported ten percent 21 of that as the taxable portion on the return for 2006 . 22 Petitioners attached to the return a copy of a settlement 23 Petitioner Mr . Lewis had entered into with the Commissioner 24 regarding his retirement pay received in 1998 . Th e 25 settlement reached provided that Petitioner Mr . Lewis Heritage Reporting Corporatio n (202) 628-4888 4 1 properly excluded the amounts attributable to the VA 2 disability pay . 3 Petitioner Mr . Lewis states that he was simpl y 4 doing what he was told to do for the earlier year regarding 5 the taxable portion of his retirement pay . 6 The Court has issued an opinion on whether a 7 disability percentage rating issued by the VA entitles a 8 taxpayer to exclude any portion of military retirement pay 9 based on length of service . Holt v . Commissioner , T .C . 10 Memo . 1999-348 . On similar facts to these, the Court ruled 11 that payments under military service pensions be included in 12 income regardless of the existence of a VA disabilit y 13 determination . The Court cited two cases for this holding . 14 15 Lambert v . Commissioner , 49 T .C . 57 (1967) ; Sidoran v . Commissioner , T .C . Memo, 1979-56, aff'd . 640 F .2d 231 (9th 16 Cir . 1981) . In these cases, we held that a VA disability 17 determination does not prove that a portion of a pension is 18 received for injuries sustained during active service . 19 Here, Petitioner Mr . Lewis acknowledges that the 20 law is now more clear . He was not aware of this precedent 21 at the time of filing the return for 2006, but he is now 22 aware of the law . We are not going to fault Petitioners for 23 relying upon the settlement agreement . We found Petitioner 24 Mr . Lewis extremely credible . We also take him at his word . 25 In the future, he will report the full amount of militar y Heritage Reporting Corporation (202) 628-4888 5 1 retirement income as taxable . 2 To reflect the foregoing, decision will be entered 3 under Rule 155 to reflect Petitioners' concession regarding 4 the gambling and COD income for the year . 5 This concludes the Court's oral findings of fac t 6 and opinion in this case . 7 (Whereupon, at'10 :16 a .m ., the bench opinion in the 8 above-entitled case was concluded .) 9 10 11 12 13 14 15 16 17 18 19 20 2 1 22 23 2 4 25 Heritage Reporting Corporation (202) 628-4888