                  T.C. Summary Opinion 2002-77



                     UNITED STATES TAX COURT



   VERNON J. NICHOLAS, III, AND MICKI NICHOLAS, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10398-00S.              Filed June 27, 2002.


     Vernon J. Nicholas III, pro se.

     Rollin G. Thorley, for respondent.



     PAJAK, Special Trial Judge:    This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.   The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.   Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

effect for the years in issue.

     Respondent determined deficiencies in petitioners’ 1997 and
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1998 Federal income taxes in the amounts of $3,625 and $1,526,

respectively.    Petitioners conceded that they had unreported

income in the amounts of $748 in 1997 and $54 in 1998.     The sole

issue the Court must decide is whether Social Security disability

payments are includable in gross income.

     Some of the facts in this case have been stipulated and are

so found.   Petitioners resided in Las Vegas, Nevada, at the time

they filed their petition.

     Petitioners timely filed their joint 1997 Federal tax return

(1997 return).    Petitioners reported adjusted gross income of

$51,316 on their 1997 return.

     Petitioners timely filed their joint 1998 Federal tax return

(1998 return).    Petitioners reported adjusted gross income of

$66,049 on their 1998 return.

     Petitioner Micki Nicholas (petitioner) received Social

Security disability benefits in 1997 of $17,587.     Portions of the

amount received in 1997 included unpaid disability claims for the

taxable years 1994, 1995, and 1996.     Petitioner also received

$6,249 in Social Security disability benefits during 1998.

Petitioners did not report any portion of the disability benefits

received in 1997 and 1998 on their respective Federal income tax

returns.

     Petitioners contend that the Social Security disability

benefits are not taxable and, additionally, that a portion of the
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benefits received in 1997 related to a work-related injury

settlement for prior taxable years.     Respondent contends that 85

percent of the Social Security disability benefits received by

petitioner are subject to tax under section 86(a) and that

$14,949 and $5,312 is includable in petitioner’s gross income for

the taxable years 1997 and 1998, respectively.

       In certain circumstances, section 7491 places the burden of

proof on respondent with regard to certain factual issues.

Because the facts in this case are undisputed, we find that

section 7491 has no bearing on the determination of the legal

issues before us.

       Prior to 1984, certain disability benefits were excludable

from an employee’s gross income under section 105(d).      Maki v.

Commissioner, T.C. Memo. 1996-209.      However, this section was

repealed, and “since 1984 Social Security disability benefits

have been treated in the same manner as other Social Security

benefits.”    Id.; accord Bradley v. Commissioner, T.C. Memo. 1991-

578.    Accordingly, we hold that the Social Security disability

payments received by petitioner are subject to tax in the same

manner as other Social Security benefits.

       Section 61(a) provides that gross income includes all income

from whatever source derived, unless excludable by a specific

provision of the Code.    Moreover, section 86(a) requires the

inclusion of a portion of Social Security benefits in gross
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income when the sum of the recipient’s modified adjusted gross

income plus one-half of the Social Security benefits exceeds

certain threshold amounts.    In the case of a joint return, when

this sum exceeds $32,000, the lesser of such excess or 50 percent

of the Social Security benefits received during the taxable year

must be included in gross income.      Sec. 86(a)(1), (c)(1)(B).

When this sum exceeds $44,000 in the case of a joint return, up

to 85 percent of the Social Security benefits received during the

taxable year must be included in gross income.      Sec. 86(a)(2),

(c)(2)(B).    Under section 86, modified adjusted gross income in

general equals adjusted gross income with adjustments not

relevant here.    Sec. 86(b)(2).

     Social Security benefits are included in the recipient’s

gross income in the taxable year in which the benefits are

received.    Sec. 86(a)(1).   An election may be made by taxpayers

who receive lump-sum payments of Social Security benefits during

the taxable year in which a portion of the benefits is

attributable to previous taxable years.      Sec. 86(e).   Section

86(e) provides that, if the election is made, the amount included

in gross income for the taxable year of receipt must not exceed

the sum of the increases in gross income for those previous

taxable years that would result from taking into account the

portion of the benefits attributable to the previous taxable

years.   Accordingly, if no election is made by the taxpayer under
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section 86(e), lump sum distributions of Social Security benefits

are includable in the taxpayer’s gross income in the taxable year

the benefits are received.   Petitioners did not make an election

under section 86(e) with respect to the lump-sum Social Security

disability benefits received in 1997.

     Accordingly, we sustain respondent’s determination that

petitioners’ gross income includes 85 percent of the respective

Social Security disability benefits received during the years in

issue.

     Reviewed and adopted as a report of the Small Tax Case

Division.



                                            Decision will be entered

                                       for respondent.
