Court Opinion

ID: 9370486
Source: CourtListenerOpinion
Date Created: 2023-02-13 20:01:19.837544+00
Date Added: 2024-06-11T17:16:20.822227
License: Public Domain

United States Tax Court

                         T.C. Memo. 2023-15

                          TANISHA TRICE,
                             Petitioner

                                   v.

           COMMISSIONER OF INTERNAL REVENUE,
                       Respondent

                              —————

Docket No. 20398-19.                           Filed February 13, 2023.

                              —————

             In 2016–18 P claimed and received disability
      benefits from the Social Security Administration (“SSA”),
      but over that period her eligibility for benefits was
      reviewed, corrected, and re-reviewed. In 2017 the SSA
      awarded to P disability benefits that it reported on Form
      SSA–1099, “Social Security Benefit Statement”.            It
      reported a gross amount of benefits of $17,164 and
      “deductions” therefrom of $3,298 (i.e., $487 in Medicare
      Part B premium and $2,811 in “deductions for work or
      other adjustments”). Form SSA–1099 also reported that P
      had repaid to the SSA $1,529 of her 2017 benefits, and the
      form reported $15,635 in “net benefits” for 2017 (i.e., the
      gross benefits minus those repayments). The SSA paid to
      P $13,866—i.e., the total of $17,164 minus the “deductions”
      of $3,298.

             On her income tax return for 2017, P reported wages
      from employment and reported no disability benefits. She
      claimed a $2,000 Lifetime Learning credit pursuant to
      I.R.C. § 25A(a)(2).

            R issued to P a notice of deficiency, which
      determined that P should have reported Social Security
      benefits of $15,635 (the “net benefits” on Form SSA–1099)
      and that under I.R.C. § 25A(d) the resulting increase in her

                           Served 02/13/23
                                          2

[*2]   modified adjusted gross income reduced the amount of her
       Lifetime Learning credit. P petitioned the Tax Court.

              R moved for summary judgment, asserting that
       under I.R.C. § 86(a)(2)(B) 85% of P’s “net benefits” of
       $15,635 (i.e., $13,290) was taxable income, and that her
       Lifetime Learning credit should be reduced accordingly. P
       objected, admitting that she had received and should have
       reported 85% of only the payments of $13,866 (i.e., $11,786)
       that she actually received and contending that the Lifetime
       Learning credit should not be reduced.

              Held: The disability benefits that P received must be
        included in income; but the reported disability benefits
        that consisted of “deductions” have not been explained,
        and as to them P raised a “reasonable dispute” under
        I.R.C. § 6201(d) and a “genuine dispute as to any material
        fact” under Tax Court Rule 121(b) by showing that she did
        not receive them.

              Held, further, P’s Lifetime Learning credit must be
       reduced to the extent that the disability benefits cause her
       modified adjusted gross income to trigger reductions under
       I.R.C. § 25A(d).

                                    —————

Tanisha Trice, pro se.

Ka Tam and Bartholomew Cirenza, for respondent.

                          MEMORANDUM OPINION

      GUSTAFSON, Judge: On August 19, 2019, the Internal Revenue
Service (“IRS”) issued a “Notice of Deficiency” (“NOD”) for the taxable
year 2017 to petitioner, Tanisha Trice, pursuant to section 6212(a). 1 The

        1 Unless otherwise indicated, statutory references in this opinion are to the

Internal Revenue Code (Title 26 of the United States Code) as in effect at the relevant
times, and references to Rules are to the Tax Court Rules of Practice and Procedure.
Some dollar amounts are rounded. Each citation in this Opinion to a “Doc.” refers to
a document so numbered in the Tax Court docket record of this case, and a pinpoint
                                          3

[*3] issue for decision is whether (as the NOD determined) Ms. Trice
received from the Social Security Administration (“SSA”) taxable Social
Security disability benefits that she failed to report on her income tax
return. The Commissioner filed a motion for summary judgment, which
we will grant in part and deny in part.

                                   Background

      No genuine dispute has been raised as to the following facts,
except as noted below.

Social Security benefits and “deductions”

       In 2017 the SSA reported on Form SSA–1099, “Social Security
Benefit Statement”, that Ms. Trice was awarded disability benefits
totaling a gross amount of $17,164. No federal taxes were withheld from
that total. Doc. 27 at 32; Doc. 68 at 23. However, the SSA reduced this
gross amount by a total of $3,298 of what it called “deductions”. (These
are not “deductions” for income tax purposes.) These deductions
consisted of $487 in Medicare Part B premium and $2,811 in “deductions
for work or other adjustments”. These other “deductions” of $2,811 are,
as far as we can tell, not further explained in our record. 2 The total of
$17,164 minus the “deductions” of $3,298 should yield payments of
$13,866, and they did, as we show below.

SSA’s payment of the benefits

        The SSA did pay to Ms. Trice the balance of $13,866 in 2017, and
it did so by direct deposits to her bank account on the following dates in
the following amounts:

citation therein refers to the pagination as generated in the portable document format
file.
        2 The only mention of these “deductions” of $2,811 in the Commissioner’s brief

characterizes them as “withheld” and quotes Form SSA–1099 to call them “Deductions
for work and other adjustments”. See Doc. 66 at 4 n.2. We do not see in our record any
support for characterizing them as being “withheld” from one’s benefit rather than
reducing one’s benefit.
                                      4

[*4]                     10/27/2017        $11,756

                         11/13/2017          1,055

                         12/01/2017          1,055

                              Total        $13,866

That is, the SSA reports having paid a total of $13,866, Doc. 68 at 47;
and Ms. Trice’s bank reports having received $13,866, Doc. 67 at 79–80,
i.e., the SSA’s total of $17,164 minus its “deductions” of $3,298. In her
response to the Commissioner’s motion for summary judgment,
Ms. Trice now admits having received these payments. Doc. 70 at 2.

Repayment and net benefits

      In that same year Ms. Trice had repaid to the SSA $1,529 of her
2017 benefits, yielding $15,635 in “net benefits” for 2017 (i.e., gross
benefits of $17,164 minus repaid benefits of $1,529 equals net benefits
of $15,635). On Form SSA–1099 the SSA advised Ms. Trice: “Use
$15635.00 from Box 5 below . . . to see if any part of your benefits may
be taxable on your federal income tax return.” Doc. 67 at 47. Form
SSA–1099 reported that “nontaxable payments” were zero. See also
Doc. 27 at 32.

Ms. Trice’s tax return

      Ms. Trice filed her 2017 Form 1040, “U.S. Individual Income Tax
Return”, in April 2018. Doc. 68 at 12–21. She did not report the Social
Security benefits on her return; rather, Line 20a, “Social security
benefits”, was left blank. On line 7 she reported wages of $52,713 (as to
which there is no dispute); on line 37 she reported adjusted gross income
(“AGI”) of $50,450; on line 50 she reported “Education credits” of $2,000;
and on line 63 she reported a “total tax” of $3,758. She reported “total
payments” of $4,436 and claimed a refund of $678.

IRS examination

       The IRS received the SSA’s report of Ms. Trice’s 2017 Social
Security benefits. Apparently, the IRS compared that report to her 2017
return and noted her non-reporting of the disability benefits. The IRS
increased her taxable income by $13,290 (i.e., 85% of her “net benefits”
of $15,635) and, because of the resulting increase in her AGI, reduced
the amount of education credit to which she was entitled (i.e., from
                                           5

[*5] $2,000 down to $452). The IRS issued an NOD to Ms. Trice on
August 19, 2019, in which it determined, on the basis of those
corrections, a tax deficiency of $4,860 for 2017.

Tax Court proceedings

       Ms. Trice timely filed her Tax Court petition on November 15,
2019. 3 The petition “dispute[s] the inclusion of social security income”
but is ambiguous as to whether it contends that she did not receive the
benefits or instead contends that benefits she did receive are not taxable.
In a later filing, she explained:

        The income tax deficiency alleged by Respondent resulted
        from an overpayment [of benefits] made by the Social
        Security Administration (see exhibit A).[4] Petitioner had
        been working with the Social Security Administration
        since 2015 to get the issue resolved and to determine the
        actual amount of the overpayment, as the alleged amount
        stated as an overpayment that is alleged in the tax
        deficiency continues to change. The Social Security
        Administration has informed Petitioner that the amount
        alleged in Respondent’s exhibits is still in question and it
        has not been determined how much was sent to Petitioner.
        [Doc. 28, para. 2(a).]

     We called the case for trial at a “remote” session (conducted via
Zoomgov.com) on December 16, 2021. At that session before the trial

        3Ms. Trice’s address on her petition indicates that, under section 7482(b)(1)(A),
venue for an appeal in this case would presumptively be the U.S. Court of Appeals for
the Fourth Circuit.
         4 Ms. Trice’s Exhibit A is a letter from the SSA dated February 28, 2018. The

SSA had previously demanded repayments in February and August 2017, see Doc. 27
at 29–30, but its lump-sum payment of $11,756 to Ms. Trice in October 2017 shows
that as of that time it had determined she was entitled to benefits. Form SSA–1099
states that the total of $17,164 “includes $4763.20 paid in 2017 for 2016”, see Doc. 27
at 32, so we infer that by October 2017 the SSA had determined she was entitled to
retroactive benefits. We note that the subsequent February 2018 letter (Exhibit A)
stated that the SSA “looked at your work and earnings for June 2012 through February
2018. Our review shows that, because of your work, you may not be eligible for
disability payments.” Payments that Ms. Trice may have received or repaid in 2018 or
thereafter are not at issue in this case, which concerns only 2017.
                                            6

[*6] started, Ms. Trice made specific allegations, Doc. 38 at 6–7, about
her non-receipt of the Social Security benefits:

       Based on the bank statements that I have, I received two
       payments in 2017, one for $661.50 and the other one is for
       645.50,[5] which is listed in my exhibits. And the last
       payment was in February of 2017. And it also matches the
       documentation that I received from Social Security, which
       they were claiming.

On the strength of that information, we ruled “that Ms. Trice has raised
a ‘reasonable dispute’ about the possible inaccuracy of the SSA’s
information return, so that the Commissioner ‘shall have the burden of
producing reasonable and probative information . . . in addition to such
information return.’ I.R.C. sec. 6201(d).” 6 Doc. 37. We granted
Ms. Trice’s motion for continuance and set a routine and schedule for
further discovery to be conducted.

       After conducting discovery to obtain records of the SSA and of Ms.
Trice’s bank, the Commissioner filed a motion for summary judgment.
Using those records, his motion shows that:

   •   for 2017 the SSA reported gross benefits of $17,164, subject to
       “deductions” of $3,298 (yielding payments of $13,866);

   •   the SSA reported that Ms. Trice repaid to the SSA $1,529 of her
       2017 benefits, yielding $15,635 in “net benefits” for 2017;

   •   that Ms. Trice received from the SSA amounts totaling $13,866
       that were deposited into her bank account in 2017; and

   •   that the NOD determined (1) that her taxable income for 2017
       should be increased by 85% of the net benefits of $15,635, i.e., by
       $13,290, and (2) that her education credit should be reduced
       because of the increase in her income.

       5  Ms. Trice’s bank statements do show deposits of SSA payments of $661.50 on
December 30, 2016, and of $645.50 on February 1, 2017. Doc. 67 at 73–74. The latter
payment might increase her 2017 income tax liability, but it was evidently not included
in the total reported on Form SSA–1099, and the Commissioner does not raise this as
an issue, so we do not consider it further.
       6   Section 6201(d) is discussed below in Part I.B.
                                    7

[*7] Ms. Trice opposed the motion. She now admits that in 2017 she did
receive from the SSA payments of $13,866, but she contends that the
amount taxable to her is 85% of that amount (and not 85% of the “net
benefits” of $15,635). She also contends that the NOD erred by reducing
her education credit.

                               Discussion

I.    Applicable legal principles

       To resolve the disputed issues—i.e., the amount of Social Security
benefits that is taxable to Ms. Trice and the amount of the Lifetime
Learning credit to which she is entitled—we refer to the following legal
principles.

      A.     Summary judgment

      The purpose of summary judgment is to expedite litigation and
avoid unnecessary trials. Fla. Peach Corp. v. Commissioner, 90 T.C.
678, 681 (1988). We may grant a motion for summary judgment when
there is no genuine dispute of material fact and a decision may be
rendered as a matter of law.       Rule 121(b); Elec. Arts, Inc. v.
Commissioner, 118 T.C. 226, 238 (2002).

       The moving party bears the burden of presenting evidence to
“show that there is no genuine dispute as to any material fact and that
a decision may be rendered as a matter of law”, Rule 121(b); and if the
movant does so, then the opposing party “must set forth specific facts
showing that there is a genuine dispute for trial”, Rule 121(d). In
determining the presence or absence of a genuine dispute, the Court will
view factual material and draw inferences in the light most favorable to
the nonmoving party. Dahlstrom v. Commissioner, 85 T.C. 812, 821
(1985). As we consider the Commissioner’s motion for summary
judgment, we therefore will draw inferences in favor of Ms. Trice.

      B.     Unreported income

      Where the Commissioner alleges that a taxpayer failed to report
income, he must “provide some predicate evidence connecting the
taxpayer to the charged activity” before the presumption of correctness
attaches to his determination. Gerardo v. Commissioner, 552 F.2d 549,
554 (3d Cir. 1977), aff’g in part, rev’g in part T.C. Memo. 1975-341. Once
the Commissioner connects the taxpayer with the unreported income,
then at trial the taxpayer would bear the burden of proving that she did
                                   8

[*8] not receive the income, see Williams v. Commissioner, 999 F.2d 760,
763 (4th Cir. 1993), aff’g T.C. Memo. 1992-153; Walker v. Commissioner,
757 F.2d 36, 38 (3d Cir. 1985), rev’g and remanding T.C. Memo. 1983-
538; see also Rule 142(a), or, in response to a motion for summary
judgment, the taxpayer’s burden would be to raise a genuine dispute as
to her receipt of the income. The Commissioner has shown, and
Ms. Trice has admitted, that she received payments from the SSA
totaling $13,866, so that amount is not subject to “genuine dispute”. The
parties agree that, pursuant to section 86(a)(2)(B), 85% of those Social
Security benefits is taxable.

       However, the Commissioner contends that the unreported income
is a greater amount—namely, $15,635, which is $1,769 greater than the
$13,866 that Ms. Trice admits. As to this additional amount, the
Commissioner does not allege that the SSA actually paid it to Ms. Trice
but rather alleges that it was a portion of a benefit award that was
“deduct[ed from her benefits] for work or other adjustments”. As to that
unpaid, “deducted” portion of the benefits, the Commissioner relies on
Form SSA–1099 to show that it was in fact income to Ms. Trice even
though it was admittedly not paid to her. As we noted above, such
reliance on an information return implicates section 6201(d), which
provides:

      In any court proceeding, if a taxpayer asserts a reasonable
      dispute with respect to any item of income reported on an
      information return . . . and the taxpayer has fully
      cooperated with the Secretary (including providing, within
      a reasonable period of time, access to and inspection of all
      witnesses, information, and documents within the control
      of the taxpayer as reasonably requested by the Secretary),
      the Secretary shall have the burden of producing
      reasonable and probative information concerning such
      deficiency in addition to such information return.

That is, when determining income, the IRS may rely on a third-party
payor’s “information return” (such as Form 1099). See, e.g., Cabirac v.
Commissioner, 120 T.C. 163, 166–67 (2003), aff’d per curiam without
published opinion, 2004 WL 7318960 (3d Cir. Feb. 10, 2004). But if a
taxpayer “asserts a reasonable dispute” as to an income item reported
on such a return, the Commissioner must “produc[e] reasonable and
probative information . . . in addition to such information return.”
§ 6201(d). We discuss the effect of section 6201(d) below in Part II.A.2.
                                             9

[*9]    C.        Lifetime learning credit

       Section 25A(a)(2) provides for a “Lifetime Learning Credit” equal
to 20% of as much as $10,000 of certain education-related expenses,
§ 25A(c)(1)—i.e., a credit of up to a maximum of $2,000. This credit is
claimed on Form 8863, “Education Credits (American Opportunity and
Lifetime Learning Credits)”, attached to Form 1040. Section 25A(d),
however, as in effect for 2017, limits and reduces the amount of the
otherwise available credit—

        by the amount . . . which bears the same ratio to the
        amount which would be so taken into account as—

                  (A) the excess of—

                                 (i) the taxpayer’s modified[7] adjusted
                          gross income for such taxable year, over

                                 (ii) $40,000 ($80,000 in the case of a
                          joint return), bears to

                  (B) $10,000 ($20,000 in the case of a joint return).

Form 8863, as prescribed for 2017, implemented this limitation on lines
13–18, which began to phase out the credit for a single taxpayer with
AGI of $56,000 or more and phased it out entirely when AGI equals
$66,000 or more. We discuss this issue below in Part II.B.

II.     Analysis

        A.        Unreported Social Security benefits

                  1.      Conceded amount

        On her 2017 return, Ms. Trice reported zero income from Social
Security benefits. She now admits that, as her bank records show, she
received benefits of $13,866, and she admits that 85% of that amount
(i.e., $11,786) constitutes taxable income. Thus, given the absence of
any genuine dispute of material fact, the Commissioner is entitled to
partial summary judgment to that extent.

        7   The modifications, which are described in section 25A(d)(3), are not relevant
here.
                                    10

[*10]        2.     Disputed amount

       As to an additional amount, a dispute does exist. The Form
SSA–1099 shows a gross benefit of $17,164 for 2017 but also shows Ms.
Trice’s 2017 repayments of $1,529, yielding $15,635 in “net benefits” for
2017; and the Commissioner treats that $15,635 in “net benefits” (not
the $13,866 actually paid) as the relevant amount, of which 85% (i.e.,
$13,290, not just $11,786) would be taxable. However, the Form
SSA–1099 also shows “deductions” totaling $3,298—i.e., $487 in
Medicare Part B premium and $2,811 in “deductions for work or other
adjustments”.

       The Commissioner treats these “deductions” as if they were
“withheld” from benefits otherwise due and as if they did not reduce the
reportable amount of those benefits. His approach is apparently not
inconsistent with the instructions on Form SSA–1099, which do state:
“Use $15635.00 . . . to see if any part of your benefits may be taxable on
your federal income tax return.” Doc. 67 at 47. Withholding from
paychecks is a common phenomenon that often does not reduce the
taxable amount. Most typically, the withholding of federal income tax
and Social Security tax does not reduce the employee’s taxable wages;
rather, that withholding is used (for the employee’s sake) to prepay the
tax that will be due when her return is later filed. The relevant
information return—the employee’s Form W–2, “Wage and Tax
Statement”—reports the gross wages and the tax withholding, but the
withholding of the tax does not affect the taxability of the gross amount
of the wages.        Perhaps using this withholding analogy, the
Commissioner treats Ms. Trice’s entire “net benefits” of $15,635 (i.e., net
after repayments) as taxable (to the extent of 85%), and he does not
reduce that amount by the supposed “withh[olding]” of the “deductions”.

       The Commissioner’s approach may be appropriate for the
Medicare premium. That $487 premium could indeed have been
“withheld” from benefits otherwise due to Ms. Trice and then paid over
(for her sake), thus leaving her taxable disability benefit unreduced by
the withheld premium.

       However, neither the Commissioner’s motion nor the Form
SSA–1099 shows what the other $2,811 of “deductions” was nor whether
the Commissioner’s approach achieves the correct tax treatment. The
other “deductions” that SSA supposedly “withheld” here were not income
or employment taxes. Rather, the form is explicit that zero taxes were
                                   11

[*11] withheld; and the amounts are described as “deductions for work
or other adjustments”, which is not a sufficient explanation.

       SSA correspondence did explain to Ms. Trice that “because of your
work, you may not be eligible for disability payments for: July 2016 and
continuing. . . . You can still give us more information about your work.”
Doc. 27 at 26; see also id. at 27 (“Your disability ends if your work
activity shows your ability to do substantial work”). It thus seems
entirely possible that the phrase “deductions for work” indicates that,
because of wages Ms. Trice was able to obtain from other work, the SSA
reduced the disability benefit that it would otherwise have allowed her.
Because she earned (taxable) wages from other work, the SSA reduced
her award by $2,811 and did not pay her that portion (nor withhold it
and pay it over for her sake to some other obligation, such as taxes or
Medicare premium) because she was not “eligible” for that amount of
benefit. If that is so, then it would seem she should not be taxed on any
income beyond what she actually received from the SSA.

       We do not so hold. We hold, rather, that for purposes of section
6201(d) the Commissioner has not “produc[ed] reasonable and probative
information . . . in addition to” the Form SSA–1099 to show Ms. Trice’s
receipt of more than $13,866 and that for purposes of Rule 121(b) he has
not “show[n] that there is no genuine dispute as to any material fact and
that a decision may be rendered as a matter of law”. We will therefore
deny his motion in part as to the Social Security disability benefits
greater than $13,866.

      B.     Reduction in Lifetime Learning credit

       Ms. Trice argues that she “was entitled to claim the full credit of
$2000”, Doc. 70 at 3, without any mention of the limitation imposed by
section 25A(d). Her tax return reported zero Social Security benefits
and reported AGI of only $50,450 (an amount lower than $56,000).
Consequently, when she filled out Form 8863, she computed on lines
13–18 no reduction of the $2,000 maximum credit. If she had received
no taxable Social Security benefits, then that would apparently have
been the correct credit amount. But she admits she did receive taxable
disability benefits, and that changes the equation.

       If the Commissioner ultimately proves to be right as to $15,635 of
disability benefits (of which the 85% taxable portion would be $13,290),
then Ms. Trice’s AGI would be $63,740—an amount that is greater than
$56,000 and less than $66,000 and that therefore triggers a partial
                                   12

[*12] reduction of the credit. Ms. Trice disputes his contention; but as
we have shown, she now admits that she did receive benefits of a lesser
amount—i.e., $13,866—with an 85% taxable portion of $11,786. Even if
she is right about the amount of benefits, her reported AGI of $50,450
would be increased by $11,786 to an AGI of $62,236, still triggering a
partial reduction of the credit.          We therefore will grant the
Commissioner’s motion for partial summary judgment in that the credit
must be reduced pursuant to section 25A(d), but we will deny the motion
in part as to the precise amount, until the dispute about the “deductions”
from her disability benefits has been resolved.

III.   Conclusion

       Concerning income from Social Security disability benefits, we
will grant the Commissioner’s motion for summary judgment in part as
to the conceded benefits of $13,866, but we will deny it in part as to the
additional disputed benefits. Concerning the Lifetime Learning credit,
we will grant the motion in part as to the reduction pursuant to section
25A(d), but we will deny it in part as to the precise amount of the
reduction. To effect this result,

       An appropriate order will be issued.