                     T.C. Summary Opinion 2010-118



                        UNITED STATES TAX COURT



                   JOHN THOMAS BAYSE, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



        Docket No. 22322-09S.             Filed August 17, 2010.



        John Thomas Bayse, pro se.

        Katherine Lee Kosar, for respondent.



     JACOBS, Judge:     This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect

when the petition was filed.     Pursuant to section 7463(b), the

decision to be entered is not reviewable by any other court, and

this opinion shall not be treated as precedent for any other

case.
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     Respondent determined a deficiency of $7,326 for 2006.    The

issue for decision concerns the characterization of amounts

petitioner received from the City of Cleveland, Ohio, in 2006,

i.e., whether such amounts constitute taxable income, as

respondent maintains, or represent amounts received under a

worker’s compensation act within the meaning of section

104(a)(1), as petitioner asserts.

     All section references are to the Internal Revenue Code

(Code) in effect for 2006.

                             Background

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.    Petitioner resided in

Ohio when he filed the petition.

     Petitioner began working as a firefighter with the City of

Cleveland, Ohio, in May 1989.   On January 19, 2005, he was

injured in the line of duty while responding to an automobile

accident.   For purposes of his firefighting duties, petitioner

was deemed to have suffered a “hazardous duty injury”.    From the

day of the accident through his retirement from the fire

department in December 2006 (with the exception of 2 days when he

attempted to work in 2005), petitioner was on hazardous duty

injury status and was paid pursuant to the terms of a collective
                               - 3 -

bargaining agreement (CBA) between the City of Cleveland and

Cleveland Fire Fighters, Local 93 (the union).

     Article VIII, paragraphs i and j, of the CBA provides terms

for hazardous duty injury status pay.   Paragraph i provides:

     An employee who suffers a compensable injury on the job
     shall be paid at the straight time base rate for any absence
     from work during his regular shift on the day of the injury
     that is authorized in writing by the Safety Division Medical
     Officer.

Paragraph j provides that a firefighter who qualifies for

hazardous duty injury status will continue to be paid by the City

of Cleveland as if he were still on duty, although he may not

accrue additional sick and vacation days while on hazardous duty

injury status.   If a firefighter is on hazardous duty injury

status for 2 years, the “employee shall apply for a permanent

disability retirement pension under the laws of Ohio or return to

normal duty with the Department.”

     For injuries that are not classified as hazardous duty

injuries, paragraph j of the CBA provides:

     Injuries which are incurred by Fire Fighters while they are
     engaged in supportive duties or work which is incidental to
     active fire fighter duty are compensable through the Ohio
     Bureau of Workers’ Compensation.

     Thus, if a firefighter sustains a hazardous duty injury,

payment for the first 2 years is made by the City of Cleveland as

if the firefighter were still on duty, whereas if the injury is

sustained while engaged in supportive or incidental duties,

payment is made from the Ohio Worker’s Compensation system.     Both
                                - 4 -

parties agreed that petitioner’s injuries were not support duty

or incidental duty injuries.1

     Pursuant to the terms of the CBA, petitioner applied for and

was granted a disability retirement pension, effective January 1,

2007.

     Petitioner timely filed Form 1040, U.S. Individual Income

Tax Return, for 2006.   On the return, petitioner reported gross

wages of $5,611.71 earned from Rural Metro Corporation, interest

income of $249.60, and a State tax refund of $1,824.   The total

income reported for 2006 was $7,685.31.   Petitioner attached Form

W-2, Wage and Tax Statement, received from Rural Metro

Corporation reflecting Federal tax withholding of $526.79.    Also

attached to petitioner’s 2006 return was a Form

W-2 from the City of Cleveland listing wages of $43,816.28,

Federal tax withholding of $5,102.05, State tax withholding of

$1,521.37, and city tax withholding of $974.18.   Petitioner did

not include the amounts paid to him by the City of Cleveland on

his 2006 tax return.

     Petitioner reported total tax withholding of $5,628.84 (the

combined withholding from Rural Metro Corporation and the City of




     1
      Support duty is duty auxiliary or ancillary to active
firefighting. Thus, an injury that occurred due to an accident
at the fire station while doing routine work would be considered
an injury while engaged in supportive duties. The record does
not contain a definition or example of an incidental duty injury.
                               - 5 -

Cleveland), no Federal tax due, and claimed a refund for the

entire amount ($5,628.84) of Federal taxes withheld.

     By letter dated July 23, 2007, the City of Cleveland advised

petitioner that he was “on the sick list due to an ‘On Duty’

Injury in 2005”.   The letter further provided “Pursuant to the

contractual agreement, [Mr. Bayse] suffered no loss of

accumulated sick time or wages from the City of Cleveland” during

the period from January 1, 2006, through December 17, 2006.

     Following an audit of petitioner’s 2006 Federal income tax

return, on August 21, 2009, respondent mailed petitioner a notice

of deficiency for 2006, which stated:

     It is determined that the income received from the City of
     Cleveland must be included in gross income because it does
     not constitute an amount received under a workmen’s
     compensation act as compensation for personal injuries or
     sickness within the meaning of I.R.C. Section 104(a)(1).
     Taxable income is therefore increased by $43,816.28.2


     2
      Respondent mistakenly issued petitioner a notice of intent
to levy with respect to the payments made to him by the City of
Cleveland. After a collection due process hearing, where
respondent upheld the proposed levy, petitioner petitioned this
Court (docket No. 29604-08S), challenging respondent’s collection
activities. Before trial, respondent agreed to abate the
assessment.

     By order of dismissal entered Sept. 29, 2009, we determined
that the case was moot and ordered respondent to pay petitioner’s
filing fee and postage costs. On Jan. 20, 2010, respondent
mailed petitioner a check for $65.90 to reimburse him for his
costs. On or about Apr. 2, 2010, respondent generated a credit
transfer reversal of $1,993.94, plus interest, with respect to an
offset of petitioner’s withholding for 2007. Petitioner advised
respondent that these funds were paid directly to the State of
Ohio as a result of its determination that petitioner understated
                                                   (continued...)
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                            Discussion

     Gross income includes all income from whatever source

derived unless excludable by a specific provision of the Code.

Sec. 61(a).   One type of exclusion is section 104(a)(1) for

“amounts received under workmen’s compensation acts as

compensation for personal injuries or sickness”.    Section 1.104-

1(b), Income Tax Regs., provides that section 104(a)(1) excludes

amounts received under a worker’s compensation act “or under a

statute in the nature of a workmen’s compensation act which

provides compensation to employees for personal injuries or

sickness incurred in the course of employment.”    See also sec.

31.3121(a)(2)-1(d), Employment Tax Regs.   This exclusion has been

strictly construed to conform to the general rule that all income

is taxable unless specifically excluded.   See Kane v. United

States, 43 F.3d 1446, 1449 (Fed. Cir. 1994); Baldwin v.

Commissioner, T.C. Memo. 2000-306.

     Respondent contends that the amounts petitioner received

from the City of Cleveland in 2006 were not made under a worker’s

compensation act (or pursuant to a legislative act in the nature

of a worker’s compensation act) as required in section 104(a)(1)

and thus are not excluded from petitioner’s gross income.

Respondent maintains that the CBA entered into between the City


     2
      (...continued)
his wage income for 2006. Subsequently, respondent issued the
notice of deficiency which gave rise to the instant matter.
                              - 7 -

of Cleveland and the union was a labor contract which does not

rise to the force and effect of law.

     Petitioner contends that because the CBA was signed by the

mayor on behalf of the City of Cleveland, the CBA is equivalent

to a city ordinance and therefore qualifies as a statute in the

nature of a worker’s compensation act.

     Where administrative rules or regulations have “the force

and effect of law”, they are considered to be the equivalent of a

statute for purposes of section 1.104-1(b), Income Tax Regs.

Dyer v. Commissioner, 71 T.C. 560, 562 (1979).   However, a

collective bargaining agreement, in general, will not meet the

“force and effect of law” requirement.   As explained in Rutter v.

Commissioner, 760 F.2d 466, 468 (2d Cir. 1985), affg. T.C. Memo.

1984-525:

     A regulation, like a statute, is a rule of general
     applicability promulgated by a public agency to govern
     conduct within the agency’s jurisdiction. A labor contract,
     unlike a statute, is an agreement between union and
     employer, modifiable at any time. That * * * [a] labor
     contract involved a public employer is irrelevant to the
     legislative purposes behind the workmen’s compensation
     exclusion, and does not convert the contract into a
     “statute”. * * *

     Thus, when the language of a collective bargaining agreement

is by legislative act incorporated by reference or otherwise into

a municipal code, and by this measure is enacted into law, it

meets the statutory and regulatory requirements described supra.

Cf. Givens v. Commissioner, 90 T.C. 1145, 1149-1151 (1988).
                                - 8 -

Otherwise, it is not considered to have the force and effect of

law.    Mere approval by the mayor or the city council of a

collective bargaining agreement negotiated by a city and a union

does not, without explicit incorporation into the city’s code,

meet the requirements described supra.    See Rutter v.

Commissioner, supra at 468; Brooks v. Commissioner, T.C. Memo.

1997-568.

        Rev. Rul. 81-47, 1981-1 C.B. 55, involves the taxation of

payments made by a governmental entity to disabled county safety

officials (e.g., firefighters and police officers) pursuant to

the terms of a collective bargaining agreement.    The ruling held

the payments to be excluded from gross income under section

104(a)(1).    The collective bargaining agreement involved had been

entered into pursuant to a county statute.    The county statute

provided that all collective bargaining agreements entered into

by the county had to be approved by “legislative acts” of the

county council and incorporated by reference in the county code.

The ruling stated the county council’s adoption of the collective

bargaining agreement had the effect of enacting and incorporating

the provisions of the collective bargaining agreement into the

county code.

       In the situation herein, the CBA was signed by the Mayor of

Cleveland, Frank R. Jackson.    The record does not indicate

whether the CBA was ratified by the Cleveland City council.    Even
                               - 9 -

assuming arguendo that the CBA was ratified by the Cleveland City

council, there was no showing that the CBA was incorporated by

reference or otherwise into the Cleveland City code or charter.

Hence, the facts in Rev. Rul. 81-47, supra, are distinguishable

from those herein.

     The facts in Rev. Rul. 83-77, 1983-1 C.B. 37, are similar to

those herein.   That ruling involved a New York City police

officer who was injured in the line of duty and was determined to

be unable to perform regular police duties as a result of his

injury.   The police officer was ordered to remain off duty

indefinitely.   Under the terms of the collective bargaining

agreement negotiated by the union and the City of New York, a

police officer was entitled to leave with pay for the full period

of his incapacity due to any illness, injury, or mental or

physical defect, whether or not incurred in the line of duty.

The collective bargaining agreement was consistent with a section

of the New York City administrative code which permits payments

of salary while a police officer was absent because of sickness

or injury, whether or not service connected.   The ruling gave two

reasons why the payments to the police officer were not

excludable from his gross income.   First, and most relevant to

the instant matter, the ruling stated that the union contract did

not qualify as a statute inasmuch as it was not incorporated by

reference or otherwise into the New York City code.   And second,
                              - 10 -

since the contract also applied to non-work-related injuries or

illness, the ruling held that payments under the contract were

not in the nature of worker’s compensation.

     This Court used reasoning in Brooks v. Commissioner, supra,

similar to that used in Rev. Rul. 83-77, supra, in determining

that amounts paid pursuant to the terms of the collective

bargaining agreement between a union and the City of Cranston,

Rhode Island, to two police officers who retired due to job

related disabilities were not excludable from gross income.    We

therein held that the collective bargaining agreement was not in

the nature of a worker’s compensation statute.   Unlike the

situation in Rev. Rul 81-47, supra, we found that the police

officers failed to show that the collective bargaining agreement

was adopted by a legislative act of the city council or

incorporated into the city’s code, ordinances, or charter.3    See

also Rutter v. Commissioner, supra.

     In the case at bar, the CBA between the union and the City

of Cleveland was not incorporated by reference or otherwise into

legislation.   The record shows only that it was signed by the

Mayor of Cleveland, although presumably it was ratified by the

Cleveland City council.   But even ratification by the Cleveland



     3
      We also held that because the police officers could receive
payments for non-work-related injuries under the collective
bargaining agreement, the payments were not in the nature of
worker’s compensation.
                              - 11 -

City council does not convert the CBA into legislation because

(1) the CBA was modifiable under the terms of Article XXX of the

CBA, and (2) unlike the county statute in Rev. Rul. 81-47, supra,

there was no showing that the State of Ohio had a statute that

required the CBA to be incorporated into the Cleveland City code

or charter.   See Rutter v. Commissioner, 760 F.2d at 468 (labor

contract does not qualify as a “statute” within the meaning of

section 1.104-1(b), Income Tax Regs.); Covert v. Commissioner,

T.C. Memo. 1990-598.   Accordingly, we hold that petitioner did

not receive disability payments under a worker’s compensation act

or a statute in the nature of a worker’s compensation act.   Thus,

the payments petitioner received in 2006 while on hazardous duty

injury status must be included in his gross income.

     To reflect the foregoing,


                                         Decision will be entered

                                    for respondent.
