                         T.C. Memo. 2003-337



                       UNITED STATES TAX COURT



        RAMON J. AND SHEILA A. JEANMARIE, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 7265-02.                Filed December 15, 2003.


     Ramon J. Jeanmarie and Sheila A. Jeanmarie, pro sese.

     Catherine S. Tyson, Gerald Brantley, and T. Richard Sealy

III, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     VASQUEZ, Judge:    Respondent determined a deficiency of

$2,010 in petitioners’ 1999 Federal income tax.   Unless otherwise

indicated, all section references are to the Internal Revenue

Code in effect for the year in issue, and all Rule references are

to the Tax Court Rules of Practice and Procedure.
                                - 2 -

     The sole issue for decision is whether $13,380 petitioner

Ramon J. Jeanmarie (petitioner) received in 1999 from the Office

of Personnel Management (OPM) as disability benefits under the

Civil Service Retirement System (CSRS) is excludable from income

pursuant to section 104(a)(4).1

                          FINDINGS OF FACT

     None of the facts have been stipulated.   At the time they

filed the petition, petitioners resided in El Paso, Texas.

     In 1976, petitioner enlisted in the United States Army

(Army).   Prior to joining the Army, petitioner suffered from

urinary problems.    He thought his urinary problems were corrected

before entering the Army; however, after entering the Army, his

symptoms returned.

     Petitioner served in the Army until 1979.   Petitioner

received an honorable discharge, not a medical discharge, from

the Army.   Petitioner did not receive Veterans’ Administration

(VA) disability when he left the Army.   Petitioner’s urinary

problems persisted after he left the Army.

     After he left the Army, petitioner was employed as a civil

service employee of the United States Navy (Navy).   In 1983,

petitioner’s employment with the Navy was terminated.   Petitioner

“fought” his termination, and in 1987 he was reinstated.


     1
        At trial, respondent conceded the only other adjustment
contained in the notice of deficiency, $20 of interest income,
because it was de minimis.
                               - 3 -

Immediately upon his return, the Navy submitted the paperwork for

petitioner’s retirement.   In 1988, petitioner retired from the

Navy.   Effective September 29, 1988, petitioner started receiving

a pension, disability benefits under CSRS, from OPM.

     Sometime in the mid to late 1990s, petitioner applied for VA

disability.   His application was denied.

     During 1999, petitioner received $13,380 from OPM as

disability benefits under CSRS.   OPM reported the distribution to

respondent on its Form 1099R, Statement of Annuity Paid.    The

distribution code on the Form 1099R was listed as “3-DISABILITY”.

Petitioners did not report the $13,380 on their 1999 joint

Federal income tax return.

                              OPINION

     Section 7491(a) places the burden of proof on the

Commissioner with regard to certain factual issues.     Higbee v.

Commissioner, 116 T.C. 438, 440 (2001).     Respondent concedes that

section 7491 is applicable to this case.

     Respondent argues that petitioners have neither introduced

credible evidence, pursuant to section 7491(a)(1), nor satisfied

the prerequisites of section 7491(a)(2).    H. Conf. Rept. 105-599,

at 240, 242 (1998), 1998-3 C.B. 747, 994, 996 (the burden is on

the taxpayer to show that he satisfied the prerequisites of

section 7491(a)(2)).   On the instant record, we agree with
                               - 4 -

respondent.   We conclude that petitioners bear the burden of

proving that respondent’s determination is wrong.2     Rule 142(a).

     As a general rule, the Internal Revenue Code imposes a tax

on the taxable income of every individual.   Sec. 1.    Section

61(a) specifies that, “Except as otherwise provided”, gross

income for purposes of calculating such taxable income means “all

income from whatever source derived”.   The Supreme Court has long

reiterated the sweeping scope of section 61.    Commissioner v.

Schleier, 515 U.S. 323, 327 (1995); Commissioner v. Glenshaw

Glass Co., 348 U.S. 426, 429-431 (1955); Banaitis v.

Commissioner, 340 F.3d 1074, 1079 (9th Cir. 2003), affg. in part

and revg. in part on another ground T.C. Memo. 2002-5.     “Pensions

and retirement allowances paid either by the Government or by

private persons constitute gross income unless excluded by law.”

Sec. 1.61-11(a), Income Tax Regs.

     Section 104, in contrast, provides an exception with respect

to compensation for injuries or sickness.    Such exclusions from

gross income are construed narrowly.    Commissioner v. Schleier,

supra at 328; United States v. Burke, 504 U.S. 229, 248 (1992)

(Souter, J., concurring in judgment); Banaitis v. Commissioner,

supra at 1079.   Section 104 reads in pertinent part:




     2
        We note that our decision in this case would not change
if respondent bore the burden of proof.
                               - 5 -


     SEC. 104. COMPENSATION FOR INJURIES OR SICKNESS.

          (a) In General.--Except in the case of amounts
     attributable to (and not in excess of) deductions
     allowed under section 213 (relating to medical, etc.,
     expenses) for any prior taxable year, gross income does
     not include--

                           * * * * * * *

               (4) amounts received as a pension, annuity,
          or similar allowance for personal injuries or
          sickness resulting from active service in the
          armed forces of any country or in the Coast and
          Geodetic Survey or the Public Health Service, or
          as a disability annuity payable under the
          provisions of section 808 of the Foreign Service
          Act of 1980;

                           * * * * * * *

          (b) Termination of Application of Subsection
     (a)(4) in Certain Cases.--

               (1) In general.--Subsection (a)(4) shall not
          apply in the case of any individual who is not
          described in paragraph (2).

               (2) Individuals to whom subsection (a)(4)
          continues to apply.--An individual is described in
          this paragraph if--

                           * * * * * * *

                    (D) on application therefor, he would be
               entitled to receive disability compensation
               from the Veterans’ Administration.

     Benefits paid under CSRS do not provide compensation for

military injuries.   Haar v. Commissioner, 78 T.C. 864, 866

(1982), affd. per curiam 709 F.2d 1206 (8th Cir. 1983).   Title 5

U.S.C. sec. 8337(a) (2000) provides:

     Any employee shall be considered to be disabled only if
     the employee is found by the Office of Personnel
                               - 6 -

     Management to be unable, because of disease or injury,
     to render useful and efficient service in the
     employee’s position and is not qualified for
     reassignment, under procedures prescribed by the
     Office, to a vacant position which is in the agency at
     the same grade or level and in which the employee would
     be able to render useful and efficient service.

Under this provision, the nature or cause of the disability is

irrelevant, and all that is taken into account is the employee’s

ability to perform his or her job or a vacant position in his or

her agency at the same grade or level.   See also Haar v.

Commissioner, supra at 866-867 (similarly discussing former 5

U.S.C. sec. 8331(6) (1976), repealed by the Omnibus

Reconciliation Act of 1980, Pub. L. 96-499, sec. 403(b), 94 Stat.

2606, which defined disability as meaning totally disabled or

total disability for useful and efficient service in the grade or

class of position last occupied by the employee because of

disease or injury).   Accordingly, in determining eligibility for

disability retirement and the amount of disability annuity

payments under CSRS, no consideration is given to whether the

disease or injury arose from military service.   See id. at 867.

     Accordingly, we conclude that section 104(a)(4) did not

entitle petitioner to exclude the disability payments he received

in 1999 because disability payments made under CSRS are not paid

for personal injuries or sickness incurred in military service.

Id.; see also Rutt-Hahn v. Commissioner, T.C. Memo. 1996-536
                              - 7 -

(section 104(a)(4) does not apply to disability payments made

under CSRS for civilian service).

     For the sake of completeness, we shall address some

additional points raised by petitioner.    First, petitioner’s

injury was not incurred in military service.    Petitioner

testified that he suffered from his symptoms prior to entering

the Army.

     Second, petitioners argue that petitioner satisfied the

requirements of section 104(b)(2)(D).    In order for section

104(a)(4) to continue to apply pursuant to section 104(b),

section 104(a)(4) must apply in the first place--i.e., the

amounts must be received for personal injuries or sickness

resulting from active service in the Armed Forces.    We have found

that section 104(a)(4) does not apply to the $13,380 petitioner

received from OPM; therefore, the provisions of section 104(b)

are not applicable to this case.    See Kiourtsis v. Commissioner,

T.C. Memo. 1996-534.

     Third, even if the provisions of section 104(b) were

applicable to this case, petitioner is not an individual

described in section 104(b)(2).    Petitioners contend that

petitioner was entitled to receive disability compensation from

the VA and this would qualify him under section 104(b)(2)(D).

Contrary to their assertions, the VA denied petitioner’s

application for disability compensation (i.e., he is not entitled
                                 - 8 -

to receive disability compensation from the VA).       This is

established by the evidence petitioners presented3 and several

court decisions which we take judicial notice of pursuant to Rule

201 of the Federal Rules of Evidence.        Jeanmarie v. Principi, No.

02-1662, 2002 U.S. App. Vet. Claims LEXIS 1072, 2003 WL 115322

(Vet. App., Dec. 10, 2002); Jeanmarie v. Gober, No. 97-1886, 2001

WL 47295 (Vet. App., Nov. 30, 2000); Jeanmarie v. West,          No. 97-

1886, 1998 WL 223457 (Vet. App., Apr. 20, 1998), remanded without

published opinion 194 F.3d 1332 (Fed. Cir. 1999).

     Last, petitioners contend that respondent allowed

petitioners to exclude petitioner’s CSRS annuity from income in

prior tax years.   Each taxable year stands alone, and the

Commissioner may challenge in a succeeding year what was condoned

or agreed to in a prior year.     Rose v. Commissioner, 55 T.C. 28,

31-32 (1970); see Kiourtsis v. Commissioner, supra (applying this

principle in the context of a section 104(a)(4) case).

     To reflect the foregoing,

                                              Decision will be entered

                                         under Rule 155.




     3
        At the close of the trial, the Court offered to keep the
record open so petitioners could supply additional records
regarding petitioner’s VA claims. Petitioners objected, so we
closed the record.
