TAX COURT OPINION

Case: Irene E. Koulikov
Docket Number: 7209-12S
Judge: Goeke
Opinion Type: bench
Filed: 03/05/2013
Pages: 10

SEC UNITED STATES TAX COURT WASHINGTON, DC 20217 IRENE E. KOULIKOV, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 7209-12S. ) ) ) ) ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk ofthe Court shall transmit herewith to petitioner and to respondent a copy ofthe pages ofthe transcript ofthe trial in the above case before Judge Joseph Robert Goeke at San Francisco, 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 as to the deficiency and a decision will be entered for petitioner as to the addition to tax pursuant to section 6662, I.R.C. (Signed) Joseph Robert Goeke Judge Dated: Washington, D.C. March 5, 2013 SERVED Mar 07 2013 Capital Reporting Company 3 1 2 3 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Bench Opinion by Judge Joseph Robert Goeke February 7, 2013 Irene E. Koulikov v. Commissioner Docket No. 7209-12S THE COURT: The Court has decided to render oral findings of fact and opinion in this case. And the following represents the Court's oral findings of fact and opinion. The oral findings of fact and opinion shall not be relied upon as precedent in any other case. This case was heard pursuant to the provisions of Section 7463 of the Internal Revenue Code in effect when the Petition was filed. Pursuant to Section 7463(b), the decision to be entered is not reviewable by an other court. Section references hereinafter are to the Internal Revenue Code in effect for the year 2009. And rule references are to the Tax Court Rules of Practice and Procedure. This Opinion is rendered pursuant to Rule 152. At the time the Petition was filed in this case, the Petitioner resided in California. The Court has jurisdiction over the present case, based upon our jurisdiction to review deficiencies in federal income tax after Respondent has issued a notice of deficiency and a timely petition has been 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 filed. That is the circumstance in the present case. Respondent issued a Notice of Deficiency for the year 2009, and determined the deficiency in the amount of $5,234, and the addition to tax under Section 6662(a) in the amount of $1,047. The Notice of Deficiency contains four adjustments lncreas1ng Petitioner's income, three of which are the primary basis for the dispute in this case. The Petitioner, in her Trial Memorandum, correctly lists these issues and indicates that she disputes the first adjustment in the amount of $18,081, including social security benefits into her income because if she is sustained on the other adjustments, the social security benefits would not be taxable. She does not contest the fact that the social security benefits would be taxable as a general proposition, but for the dollar limits on their taxability. The primary dispute in the case relates to the adjustments in the amount of $26,141, and $4,845 from the County of Sacramento and the California Public Employee Retirement System respectively. 23 Petitioner maintains that these payments should be 24 25 treated as disability retirement benefits, or compensation for disability, because at the time she 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 5 1 2 received these benefits in 2009, she was disabled as a result of her employment by Sacramento County. 3 Petitioner has had a longstanding dispute with 4 Sacramento County relative to her claims for 5 disability associated with her employment. 6 7 8 9 10 11 The tax issue in the case involves the application of Section 104 (a), and whether the amounts paid to the Petitioner are excludable under Section 104 (a or (a) There was extensive testimony and documentary evidence introduced trial regarding Petitioner's longstanding dispute 12 with Sacramento County and her claims for Workmen's 13 14 15 16 17 18 19 20 21 22 Compensation, as well as her claims for disability. Respondent does not contest Petitioner's position that she is disabled, nor does Respondent dispute her claims as to the cause of the disability. Rather, Respondent focuses on the basis of the payments to the Petitioner in 2009. Petitioner testified at trial and alleged in her Petition that in 2008 she was pressured to take retirement. She references at trial instructions concerning Sacramento County's 23 disability program. First, there is in the excerpts 24 25 from the Sacramento County handbook, an entry characterized as Service Connected Disability, which 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 8 reads as follows: "If you are proven to the satisfaction of S.C.E.R.S. Org to be permanently incapacitated for the performance of a substantial portion of your duties, and can prove that such incapacity is a result of injury or disease arising out of and in the course of your employment, and that such employment contributes substantially to such incapacity, you are eligible for a service connected 9 disability retirement allowance regardless of age or 10 11 12 13 length of service. If you are engaged in active law enforcement or fire suppression or safety category numbers, heart or cancer presumptions may apply." Those latter presumptions did not apply to 14 Petitioner, but she sought and has been disputing for 15 16 17 18 19 20 21 22 23 24 25 some time with Sacramento County that she is disabled as a result of her duties and should receive a service connected disability retirement. However, she acknowledges that the County Board has not acted favorably on her request, and that in fact the retirement benefits she received are pursuant to a different provision in the handbook, which reads as follows: "Interim Service Retirement. If you meet the eligibility requirements for a service retirement, you may apply for payment of an interim service retirement allowance, pending the 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 outcome of your disability claim. Receipt of an interim service retirement allowance makes you ineligible to return to permanent employment in the event of denial of your disability retirement application. If an interim service retirement is desired, you may complete and submit an interim service retirement application form concurrent with the disability retirement application, or at any time during the disability application process." Petitioner test'ified at trial that this was the course of conduct she was forced to take, because the County refused to act on her disability claim. We have no reason to dispute her testimony, but that issue is not necessary for us to resolve, because of the legal issue as framed by the Internal Revenue Code as it is presented to us in this case. The first basic legal proposition we would note is set forth in a T.C. Memo Opinion of this 19 Court entitled Bennett v. Commission, T.C. Memo 1991- 20 21 22 23 24 25 604. In Bennett we stated, "The federal income tax law operates on the basis of annual accounting periods. Thus, items of income and deductions must be determined each year for the events that occur during such year. In other words, the tax year concept of the federal income tax does not permit 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 4 5 6 7 8 9 retroactive adjustments. Although they may throw light upon facts and existence during the tax year, subsequent events cannot be used to change the tax consequences of an action taken in an earlier year." We cite in Bennett, Nobel v. Commission, 385 F 2nd, 439 9th Circuit 1966, in support of the quoted language. As stated previously, the issue in this case turns on Section 104 (a)1 or (a) In pertinent 10 part Section 104 (a), reads, "Except in the case of 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 amounts attributable to deductions allowed under Section 213 for any prior taxable year, gross income does not include (1) amounts received under Workmen's Compensation Acts as compensation for personal injuries or sickness; (2) the amount of any damages, other than punitive damages received, whether by suit or agreement, and whether as lump sums or as periodic payments on account of personal physical injuries or physical sickness." The Treasury has issued significant regulations relative to Section 104. And the regulations in Section 1.104-1(b) are especially pertinent. In part, those regulations read as follows: "Section 104 (a)1 does not apply to a retirement pension or annuity to the extent that it 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 4 5 6 7 8 9 is determined by reference to the employee's age or length of service, or the employee's prior contributions, even though the employee's retirement is occasioned by an occupational injury or sickness." We are bound to follow that regulation under the Supreme Court's decision in Mayo Foundation For Medical Education and Research v. United States, 562 US ___, 131 Supreme Court 704 (2011). In Mayo, the Supreme Court held that the standard in Chevron 10 U.S.A., Inc. v. National Research Defense Council, 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Inc., 467 US 837 (1984), must be followed in tax cases. The Chevron standard would not cause us to ignore the regulation in Treasury Regulation Section 1.104-1(b) quote above. In fact, we believe this regulation is within the authority of the Secretary of Treasury as outlined in Chevron. Therefore, based upon that regulation, we are bound to determine if the actual payments made to the Petitioner in 2009 were based upon her length of service. And although the Petitioner adamantly claims that she was entitled to disability payments in 2009, the actual payments paid to her by her own admission were based upon her interim claim, which was due to her eligibility for regular retirement. Therefore, we believe Respondent's position regarding 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 10 1 2 3 4 the $26,141 of retirement payments is correct and should be sustained. Relative to the $4,845 of retirement payments form the California Public Employee 5 Retirement System, Petitioner acknowledges that it 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 follows a similar analysis to the amounts from the County of Sacramento, and we believe a similar result should follow as well. The remaining issue in the case is the addition to tax under Section 6662(a). This is a very complex case. We believe Petitioner is very sincere in her claim with Sacramento County. We believe that she has ample evidence of a disability. And despite her disputes with Sacramento County, we believe she had a reasonable basis for the interpretation of the Internal Revenue Code that she took despite the fact that we disagree with that interpretation, as explained previously. Accordingly, we believe that she had reasonable cause for the position she took, which reasonable cause is a defense to the addition to tax under Section 6662(a). And we will sustain 23 Petitioner's position relative to the addition to tax 24 25 and hold that it is not applicable for the year 2009. So, in summary, a decision will be entered 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 11 for the Respondent relative to the deficiency amounts, and for the Petitioner relative to the addition to tax. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 10:45 a.m., the above- entitled matter was concluded.) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO twww.CapitalReportingCompany.com