TAX COURT OPINION

Case: Dwayne Wilson
Docket Number: 24139-10S
Judge: Armen
Opinion Type: bench
Filed: 02/23/2012
Pages: 11

UNITED ST TES TAX COURT WASHI GTON, DC 20217 DWAYNE WILSON, Petitioner v. COMMISSIONER OF INTERNAL REVE UE, Respondent d ) ) ) . ) Docket No 24139-10S. ) ) ) ) ORDE R Pursuant to Rule 152(b), Tax Cburt Rules of Practice and Procedure, it is ORDERED that the Clerk of th Court shall transmit herewith to petitioner and to respondent a copy of the pages of the transcript of thë hearing of the above case before Special Trial Judge Robert N. Armen, Jr. at San)Diego, California, on February 7, 2012, containing his oral mdings of fact and opinion rendered at the conclusion of the hearing. In accordance with the oral findingsaf fact and opinibn, an Order and Decision will be entered. (Signed) Robert N. Armen, Jr. Special Trial Judge Dated: Washington, D.C. February 23, 2012 $$RVED FEB 2 4 2012 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 Bench Opinion by Special Trial Judge Robert N. Armen, r. Dwayne Wilson v. Comm1ssloner Docket No. 24139-10S February 7, 2012 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 fi dings of.fact and opinion shall riot be relied upon as preced nt in any other case. See Rule 152 (c) , Tax Court Rules of Practice and Procedure . II. This prdceeding was heard as a Small Tax Case pursuant to the provisions of Section 7463 of the Internal Revenue Code of 1986, as amended, and Rules 170 through 175 of the Tax Court Rules of Practice and Procedure . III . This bdnch opinion is made pursuant to i he authority granted by Section 7459(b) of the Internal R venue Code of 1986, as amencied, and Rule 152 !of the Tax Court Rules of Practice and Procedure. Hereinafter in this bench opinion, and unless otherwise indicated, 11 section numbers refer to the Internal Revenue Code,t as amended and in effect for 2008, the taxable year in issue, and all . rule numbers refer to the Tax Court Rules of Practice and Procedure. IV. Dwayne ilson (Petitioner) appeared on his own behalf. Anna A. Long appeared on behalf of Respondent. V. This cas is before the Court on Respondent's Herita e Reporting Corporation (202) 628-4888 3 1 motion for summary judgment, filed October 31, 2011, and 2 3 4 5 supplemented January 3, 2012. VI. By notice dated and served August 30, 2011, this case was calendared for trial at the Court's trial session beginning on Monday, January 30, 2012, at San Diego, 6 California. 7 8 9 10 11 12 13 14 15 On October 31, 2011, Respondent filed a motion for summary judgment asking for a summary adjudication in his favor on all issues presented by the notice of deficieÂcy and the petition. By order dated November 7, 2011, Petitioner w s directed to file an objection or other response to Respondent's motion on or before December 14, 2011. .In that order, Petitioner was expressly advised that in the ab ence of a cogent response, the Court might grant Respondent's ! 16 motion. Petitioner did not file any objection or response. 17 18 19 20 21 22 23 24 25 By Order dated December 27, 2011, the Court directed Respondent to supplement his motion for summary judgment and address certain matters discussed in the preamble of that order. The Court also calendared Respondent's motion for hearing on January 31, 2012, ih San Diego, Californiah On January 3þ 2012, Respondent filed a supplement to his motion for sum¼ary judgment that complied with the Court's December 27, 2011 Order. In the supplement, Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 Respondent agrees that Petitioner is entitled to a Schedule A deduction for mortgage interest of $24,157 paid to MetLife Home Loans. This concession serves to reduce the determined deficiency by about a third, with corresponding effect on the determined additions to tax. On January 31, 2012, a hearing on Respondent's 7 motion was held in San Diego, California. Petitioner 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 appeared at that time, as did counsel for Respondent, and both parties were heard. VII. The facts relevant to the disposition of Respondent's motion are as follows: Petitioner resided in the State of California at the time that the petition was filed with ,the Court. This is an action for redetermination of deficiency and additions to tax involving the taxable (calendar) year 2008. For 23 years,: Petitioner was a member of the Teamsters Union, Local 36, and operated large trucks in Southern California, particularly related to major highway construction and improvement projects. In 1994, Petitioner injured his back but was able to continue to work. However, -se-«his injury became progressively worse, and his professional work life ended on October 8, 2002. Heritage Reporting Corporation (202) 628-4888 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 At that time, Petitioner sought disability retirement income. The Teamsters Union said that Petitioner's disability status would turn on a finding of disability made by the Social Security Administration. Unfortunately for Petitioner, the Social Security Administration declined to do so. Thereafter followed years of litigation. Ultimately, Petitioner prevailed. In 2008, Petitioner received two major awards. The first award was from the Social Security Administration and involved the payment of net benefits of $61,294.80. The second award was from Prudential Insurance Company, the plan administrator for the Western Conference of Teamsters Pension Plan, and involved the payment of $40,941. In addition to the foregoing two awards, Peti ioner received the following items of income in 2008i (1) a 16 monthly pension of $1Á243 for January through July (or 17 18 19 20 $8,701 in the aggregate) from Prudential Insurance Company as plan administrator; (2) a monthly pension of $1,219 for August through December (or $6,095 in the aggregate) ffom Prudential Insurance Company as plan administrator; (3) a 21 monthly pension from Teamsters Local 6 (which aggregated 22 $5,631 for the year); and (4) $16 of interest income from 23 MetLife Home Loans. 24 25 Petitioner did not file a federal income tax return for 2008, nor were any payments of tax made by him for that Heritage Reporting Corporation (202) 628-4888 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 year through withholding or by estimated tax or otherwise. In the absence of a return filed by Petitioner, Respondent proceeded through the substitute-for-return procedµres authorized by section 6020(b). Respondent treated Petitioner as a cash method taxpayer, and ultimately determined in the notice of deficiency that Petitioner received in 2008 gross income of $78,459, consisting of the following: (1) pension income of $61,368; (2) taxable Social Security benefits of $17,075; and (3) interest income of $16. The pension.income of $61,368 consists of: (1) $55,737 received from Prudential Insurance Company as administrator of the.Western Conference of Teamsters Pension Plan; and (2) $5,631 received directly from Teamsters Local 36. In particular, the $55,737 amount received from the Prudential Insurance Company consists of: (1) the award of $40,941; (2) monthly benefits from January through Jul of $8,701; and (3) monthly benefits from August through December of $6,095. Although Petitioner received a net Social Security benefits of $61,294 in 2008, Respondent determined that only $17,075 of that amount was taxable pursuant to Section 86. In so doing, Respondent took into account the limitation prescribed by Section 86(e) on the amount includable in income when a lump-sum amount is received. It should be Heritage Reporting Corporation (202) 628-4888 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 noted that the advantageous treatment accorded taxpayers under Section 86(e) typically requires an election by the taxpayer. See Sectioni 86(e) (1) (B). Nevertheless, Respondent gave Petitioner the benefit of this provision notwithstanding Petitioner's failure to make the requieite election. In the notice of deficiency, Respondent also determined that Petitioner was liable for additions to tax . for failure to file, failure to pay tax, and failure to pay estimated tax. VIII. Summary Judgment. In order to expedite litigation and avoid unnecessary and expensive trials, the Court may.grant summary judgment when there is no genuine issue of material fact and a decision may be rendered Ls a 15 matter of law. Rule 121(b); Sundstrand Corp. v. 16 17 18 19 20 21 22 23 24 25 Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th Cir. 1994). In deciding whether this standard is satisfied, we are guided by, inter alia, Rule 121(d), the final two sentences of which provide as follows: "When a motion for summary judgment is made and supported as provided in this Rule, an adverse party may not rest upon the mere allegations or denials of such party's pleading, but such party's response, by affidavits or as otherwise Heritage Reporting Corporation (202) 628-4888 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 8 provided in this Rule, must set forth specific fact|s showing that there is a genuine issue! for trial. If the adverse party does not so respond, then a decision, if appropriate, may be entered against such party." See also Celotex Corp.. v. Catrett, 477 U.S. 317, 322 (1986). IX. .The Internal Revenue Code makes clear that Social Security benefits, pension distributions, and interest income are species of gross income to the extent provided by statute. ;See Sections 61(a) (4), (9), (11) 72, 86, 402(a). Generallý speaking, it is of no moment that a Social Security or pension benefit is payable by reason of a taxpayer's disability. See, e.g., Section 86(d) (1) (A) compare Section 104 (a). In the instant case, Respondent has adequately demonstrated, through the many pages of exhibits attached to his motion for summary judgment, that Petitioner received the income determined in the notice of deficiency. Respondent has also demonstrated, through transcripts òf account and other materials, that Petitioner failed to file a federal income tax return for 2008, and failed to pay tax or estimated tax for that year. Petitioner afgues principally that the two big awards that he received in 2008 relate to income that should Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 have been paid to him in prior taxable years, and therefore, according to Petitioner, should not be taxable to him in 2008. However, the problem with this argument is that Petitioner is a cash-basis taxpayer. This means that Petitioner is ordinarily required to account for his income in the year in which it is actually received. See Section 451(a); Section 1.451-1(a), Income Tax Regs. Although the constructive receipt doctrine, see Section 1.451-2(a), Income Tax Regs., may serve to accelerate the reporting year, given the years of litigation that Petitioner endured to ultimately prevail, by no stretch of the imaginatio may it be said that his disability-related awards were constructively received by him prior to 2008. Petitioner also argues that disability retirement income should not be taxable. But the inconvenient truth is that, except in the narrowest of circumstances, the Congress has chosen to tax disability retirement income. See, e.g., Section 104(a) (4), exempting from gross income amounts received as a pension for personal injuries or sickness resulting from active service in the armed forces or similar service, and Section 104(a) (5), exempting from gross income amounts received as disability income attributable to injuries incurred as a direct result of a terroristic or 24 military action. 25 Petitioner's remaining arguments essentially Heritage Reporting Corporation (202) 628-4888 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 10 represent wishful thinking; e.g., because no tax was withheld from either of his awards, neither award should be taxable; because he had specifically opted for the payment of monthly benefits, a lump-sum award should not be taxable; because of his age and disability status, the "next generation" should be the one to pay tax rather than him. None of these arguments have merit. In short, Petitioner has not demonstrated that a triable issue of fact exists regarding his income for 2008 or his failure to file or his failure to pay tax or estimated tax for that year. See, e.g., Rule 121(d). We should note that the matter regarding the payment of mortgage interest discussed above was raised by the Court sua sponte and not by Petitioner. Accordingly, upon review of the record, and after the hearing on Respondent's motion, as supplemented, we conclude that there is, no genuine issue of material fact and that Respondent is entitled to judgment as a matter of ;law. X. In order to give effect to the foregoing, we shall enter an order and decision: (1) granting Respondent's motion for summary judgment, filed October 31, 2011, and supplemented January 3, 2012; and (2) ordering and deciding that, for the taxable (calendar) year 2008, Petitioner is liable for a reduced deficiency in income tax of $9,038, together with reduced additions to tax under Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 lo 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 11 Section 6651(a) (1) of $2,033.55, Section 6654 (a) of $290.46, and Section 6651(a) (2) in an amount to be determined. (Pursuant to Section 6651(a) (2), the amount of the addition to tax is 0.5 percent f the tax due for each month the tax remains unpaid, but not to exceed 25 percent in the aggregate . ) . XI. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 12:34 p.m., the bench opinion in the above-entitled matter was concluded.) // // // // // // // // // // // // // // // Heritage Reporting Corporation (202) 628-4888