                       T.C. Memo. 1996-52



                     UNITED STATES TAX COURT




                  THOMAS E. KING, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 1161-94.              Filed February 13, 1996.


     Steven C. Bublitz, for petitioner.

     Robert J. Burbank, for respondent.


                       MEMORANDUM OPINION

     GOLDBERG, Special Trial Judge: This case was heard pursuant

to section 7443A(b)(3) and Rules 180, 181, and 182.1   Respondent

determined a deficiency in petitioner's Federal income tax for

taxable year 1990 in the amount of $2,481.   After a concession by




1
     Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue. All
Rule references are to the Tax Court Rules of Practice and
Procedure.
                                 2

petitioner,2 the sole issue for decision is whether disability

benefits received by petitioner are excludable from petitioner's

gross income pursuant to section 105(c).

     Some of the facts have been stipulated and are so found.

The stipulation of facts and exhibits received into evidence are

incorporated herein by this reference.   Petitioner resided in St.

Louis, Missouri, at the time the petition was filed in this case.

     From 1978 until 1983, petitioner was employed as a police

officer with the Village of East Alton Police Department.      In or

around January 1983, petitioner suffered a heart attack while

sitting at his desk.   Although he continued to work after the

attack, petitioner was diagnosed with mitral valve prolapse and

post myocardial infarction.   During June 1983, while off duty,

petitioner fractured his right ankle and foot, broke several

ribs, broke an arm, and severed two fingers which were later re-

attached.3   Thereafter, petitioner was placed on disability

retirement and began to receive benefits equal to 50 percent of

his salary pursuant to the Illinois Pension Code, Ill. Rev. Stat.

ch. 108 1/2, par. 3 et seq. (1991) (The Pension Code).4


2
     Petitioner concedes that he failed to report interest income
of $20.
3
     The record is silent as to the cause of petitioner's injury.
4
     The paragraphs of the Illinois Revised Statutes 1991, as
amended through P.A. 87-1280, were reallocated and renumbered in
the Illinois Compiled Statutes 1992, authorized by P.A. 87-1005,
effective Jan. 1, 1993. The statute at issue is now found in
chapter 40, sec. 5/3-114.2 of the Illinois Compiled Statutes
                                 3

     The Pension Code provides for disability pensions for police

officers regardless of whether the officer becomes disabled on or

off duty.   In particular, the Pension Code provides:

     Disability pension--Not on duty. A police officer who
     becomes disabled as a result of any cause other than the
     performance of an act of duty and who is found to be
     physically or mentally disabled so as to render necessary
     his or her suspension or retirement from police service in
     the police department, shall be entitled to a disability
     pension of 50% of the salary attached to the officer's rank
     on the police force at the date of suspension of duty or
     retirement.

     If a police officer on disability pension dies while still
     disabled, the disability pension shall continue to be paid
     to the officer's survivors in the sequence provided in
     Section 3-112.

     From and after July 1, 1987, any pension payable under this
     Section shall be at least $400 per month, without regard to
     the fact that the disability or death of the police officer
     occurred prior to that date.

Ill. Rev. Stat. ch. 108 1/2, par. 3-114.2 (1991).   In the event

that an officer is disabled in the line of duty, the amount of

the pension is increased to 65 percent of the officer's salary.

Id. at 3-144.1.   Furthermore, "If a police officer receiving

pension payments re-enters active service, pension payments shall

be suspended while he or she is in service.    When he or she again

retires, pension payments shall be resumed."    Id. at 3-124.1.

     Due to the nature of his injuries, petitioner was in a cast

for approximately 1 year, and used crutches and canes for several

years thereafter.   He later refractured his ankle several times,



Annotated (Smith-Hurd 1993).
                                  4

and may suffer from acute arthritis and a loss of mobility in the

future.    Moreover, petitioner testified that as a result of his

heart attack, he suffers from low blood pressure, blurred vision,

and fainting spells.

     In 1988, petitioner was hired by Pinkerton's, Inc. on a

full-time basis as a manager and training supervisor.

Petitioner's work was sedentary in nature and did not require him

to walk or stand for any length of time.       During 1990, petitioner

left Pinkerton's, Inc. to work for the Missouri Botanical Gardens

(the Gardens) where he was hired on a full-time basis as a safety

and security manager.   Again, petitioner was able to fulfill the

majority of his duties from his desk.       On the rare occasions when

he was required to patrol the grounds, the Gardens provided him

with a golf cart.   During the taxable year at issue, petitioner

earned wages from Pinkerton's, Inc. and the Gardens totaling

$28,380.   He also received disability pension benefits from the

Village of East Alton totaling $8,704.       Petitioner did not report

the benefits on his 1990 Federal income tax return.

     On June 11, 1992, petitioner received a routine physical

review for verification of the continuance of his disability,

pursuant to paragraph 3-115 of the Pension Code.       Ill. Rev. Stat.

ch. 108 1/2, par. 3-115 (1991).       In his report, Dr. Phillip

George, the examining physician, observed that petitioner "was

able to stand and walk about the room displaying no limp" and
                                 5

that "he is not wearing any sort of supportive footwear or device

on his left foot".   The report further states:

     He was able to stand on heels and toes on both sides. He
     could hop independently on the left side. He was able to do
     so on the right, but was unstable on that side. Deep tendon
     reflexes were symmetrical and active at the knees and ankles
     bilaterally, and rated 2+. * * * He had good pulses in both
     feet. I could detect no sensory deficit in his lower
     extremities. The right ankle demonstrated no deformity or
     soft tissue swelling. Right ankle motion was slightly
     limited compared to the left. * * *

                     *     *     *     *      *

     Diagnosis: Healed Fractures, Right Ankle and Os Calcis
                Status Post Myocardial Infarction by History
                Mitral Valve Prolapse, by History

Dr. Phillip concluded that petitioner "remained disabled from the

performance of the expected [duties] of a policeman."

     In the notice of deficiency, respondent determined that the

pension benefits received by petitioner are taxable under section

105(a).   Petitioner contends that the pension benefits are

excludable from gross income under section 105(c).   Respondent's

determinations are presumed correct, and petitioner bears the

burden of proving otherwise.   Rule 142(a).

     Section 105(a) provides that amounts received by an employee

under accident and health insurance plans funded by the employer

generally are included in the employee's gross income.   However,

section 105(c) provides an exception to the general rule:

     (c) Payments Unrelated to Absence From Work.--Gross income
     does not include amounts referred to in subsection (a) to
     the extent such amounts--
                                 6

          (1) constitute payment for the permanent loss or loss
          of use of a member or function of the body, or the
          permanent disfigurement, of the taxpayer * * * and

          (2) are computed with reference to the nature of the
          injury without regard to the period the employee is
          absent from work.

Each prong of section 105(c) must be satisfied before payments

are excluded.   Beisler v. Commissioner, 814 F.2d 1304 (9th Cir.

1987) affg. en banc T.C. Memo. 1985-25.

     Neither the statute nor the legislative history precisely

describes the injuries that constitute permanent loss of a

"function of the body".   However, section 1.105-3, Income Tax

Regs., provides examples of qualifying injuries:

     For purposes of section 105(c), loss or loss of use of a
     member or function of the body includes the loss or loss of
     use of an appendage of the body, the loss of an eye, the
     loss of substantially all of the vision of an eye, and the
     loss of substantially all of the hearing in one or both
     ears. * * *

     Petitioner contends that he has lost the use of his right

ankle and foot based on his inability to run, stand for long

periods of time, walk up or down stairs without difficulty, or

dance.   Petitioner testified that his condition is degenerative

with no hope of recovery, and, therefore, qualifies as a

permanent loss of a function of the body.   In the alternative,

petitioner contends that his heart condition qualifies as a loss

of a body function in that a valve in his heart is not

functioning properly, thereby compromising his heart muscle.

Petitioner's testimony appears to be in conflict with the 1992
                                 7

report and diagnosis of Dr. George.   In any event, the type of

limitations described by petitioner do not rise to the level of a

"permanent loss or loss of use of a member or function of the

body" under section 105(c).

     In West v. Commissioner, T.C. Memo. 1992-617, the taxpayer

fell off a scaffold and suffered a compression fracture of the

thoracic spine which aggravated pre-existing injuries and

resulted in two spine infusions, disc disease, multiple problems

with his neck and back, and arthritis.   The taxpayer was a

pipefitter and, after the fall, was unable to return to that type

of work.   We held that the taxpayer's partial loss of the back

function did not constitute the loss of a member or a bodily

function within the terms of section 105(c).   We based our

holding on the facts that the taxpayer was able to work in a less

strenuous setting and the benefits received were based on the

taxpayer's years of service, not the type or severity of his

injury.

     Likewise, in Hines v. Commissioner, 72 T.C. 715 (1979), we

considered application of section 105(c) to a pilot who suffered

a heart attack and lost the use of a portion of his heart.    We

stated that "We do not think that the loss of the use of a

portion of the muscle tissue of the heart constitutes the loss of

a member or of a bodily function."    Id. at 719.   In response to

the taxpayer's argument that payment for an injury which robs an
                                   8

individual of his principal employment should qualify for the

exclusion, we observed:

     the overall scheme of section 105(c) is aimed at providing
     tax relief to persons who suffer serious, permanent physical
     injury and receive compensation because of it. The fact
     that a person may have also lost wages or suffered a
     diminution of earning capacity * * * is irrelevant.

Id. at 720.   In this case, petitioner's injury to his right ankle

and foot does not satisfy the criteria of section 105(c)(1).

Like the taxpayer in West v. Commissioner, supra, petitioner's

partial loss of an ankle and a foot does not prevent him from

working in other positions requiring less strenuous activity.

Petitioner's employment by Pinkerton's, Inc. and the Gardens is

proof of this fact.   And petitioner's heart condition, like that

of the pilot in Hines v. Commissioner, supra, and, as such, does

not qualify as a permanent loss or loss of use of a member or

function of the body under section 105(c)(1).

     Furthermore, section 105(c)(2) requires that benefits paid

under a health or accident plan be computed with regard to the

nature of the injury.     In Beisler v. Commissioner, supra, the

disability payments made to a football player were determined by

the number of years the retiree played football in the National

Football League, and not the type and severity of the injury.      In

holding that the payments were not excludable under section

105(c)(2), the Court of Appeals for the Ninth Circuit stated:

          To accomplish the congressional purpose of excluding
     only those payments that compensate for permanent losses of
     bodily function, the nature-of-the-injury requirement is
                                     9

     best read to require that benefits vary according to the
     type and severity of a person's injury. Only then are the
     payments and the injury sufficiently related to reflect the
     compensatory purpose required by section 105(c). * * *

Id. at 1308.    In West v. Commissioner, supra, we similarly held

that because the taxpayer's benefits were based on the number of

his years of service as a pipefitter at the time of the accident,

the payments were not based upon the type and severity of the

injury as required by section 105(c)(2).

     Petitioner argues that the benefits he received vary

depending on whether his disability occurred on or off duty.        He

contends that this factor satisfies the criteria of section

105(c)(2).     We disagree.   Payments made under the Pension Code

are expressly based on an officer's salary at the time of the

injury.   The distinction between where injuries occurring on and

off duty does not meet the statutory requirement that the

benefits be computed with reference to the type and severity of

the injury in question.       Petitioner would have received the same

benefits regardless of the severity of the injury that led to his

disablement as a police officer.         Furthermore, if petitioner had

been recalled to duty, benefits would have ceased.        Therefore,

petitioner's disability pension is not computed with reference to

the nature of the injury and is affected by the period petitioner

was absent from work.     Because the exception under section 105(c)

does not apply to petitioner's disability pension, the payments
                                 10

must be included in petitioner's gross income.    Respondent's

determination on this issue is sustained.

     To reflect the foregoing,

                                           Decision will be entered

                                      for respondent.
