                          T.C. Summary Opinion 2015-29



                         UNITED STATES TAX COURT



       TONY CARRANCHO AND LINDA CARRANCHO, Petitioners v.
         COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 27067-13S.                         Filed April 20, 2015.



      Tony Carrancho and Linda Carrancho, pro sese.

      Nicholas Rosado and Michael Skeen, for respondent.



                              SUMMARY OPINION


      PANUTHOS, Chief Special Trial 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
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for any other case. 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, unless otherwise indicated.

      In a notice of deficiency dated August 19, 2013, respondent determined a

deficiency in petitioners’ 2011 Federal income tax of $4,811. Respondent

determined that petitioners failed to report as income $32,827 in Social Security

benefits received in 2011.

      The issue for decision is whether petitioners are required to include certain

Social Security benefits in their gross income.

                                    Background

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

facts and the attached exhibits are incorporated herein by reference. Petitioners

resided in California when their petition was filed.

      Tony Carrancho (petitioner) became disabled on June 20, 2003. On

September 2, 2009, petitioner filed for monthly disability benefits with the Social

Security Administration. In September 2011, the Social Security Administration

determined that petitioner became disabled on June 20, 2003, and that he was

entitled to Social Security benefits beginning in September 2008. Petitioner’s

Social Security benefits were reduced by, or offset by, his workers’ compensation
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payments.1 Petitioner received $1,790.50 in 2011 representing the net Social

Security benefit allocable from December 2008 through August 2011. The

Internal Revenue Service received a Form SSA-1099, Social Security Benefit

Statement, reporting that petitioner received $54,489 in Social Security benefits

during the 2011 taxable year. The Form SSA-1099 reflects a workers’

compensation offset of $51,948. Most of the $54,489 was a lump-sum payment of

Social Security benefits attributable to prior years. Petitioners reported a payment

of $1,791 on their Form 1040, U.S. Individual Income Tax Return, for 2011 as

Social Security benefits received and reported $1,522 as the taxable amount.

      Respondent determined that the taxable amount of Social Security benefits

received was $34,349. The $32,827 adjustment is the difference between the

taxable amount that respondent calculated and the $1,522 petitioners reported as

taxable on their return.

                                    Discussion

      In general, the Commissioner’s determination set forth in a notice of

deficiency is presumed correct, and the taxpayer bears the burden of proving

otherwise. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). In cases


      1
        The record does not reflect the amount of workers’ compensation payments
that petitioner received during the period 2003-11.
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involving unreported income, this Court has recognized an exception to this rule

where the Commissioner introduces no substantive evidence and relies solely on

the presumption of correctness. Jackson v. Commissioner, 73 T.C. 394, 401

(1979). This exception is limited and does not apply where the Commissioner has

provided a minimal evidentiary foundation. Petzoldt v. Commissioner, 92 T.C.

661, 687-688 (1989). Because we decide the factual issues in the instant case on

the preponderance of the evidence, the allocation of the burden of proof is

immaterial. See Knudsen v. Commissioner, 131 T.C. 185, 189 (2008).

      Workers’ compensation is generally excludable from a taxpayer’s gross

income. Sec. 104(a)(1). In contrast, Social Security benefits, including Social

Security disability benefits, may be includable in a taxpayer’s gross income

pursuant to a statutory formula that takes into account a number of factors,

including the amount of Social Security benefits received, the taxpayer’s other

income, and the taxpayer’s filing status. Sec. 86. If the amount of Social Security

benefits that a taxpayer receives is reduced because of the receipt of workers’

compensation benefits, then the amount of the workers’ compensation benefits

that causes the reduction is treated as though it were a Social Security benefit.

Sec. 86(d)(3); Moore v. Commissioner, T.C. Memo. 2012-249, at *4-*5. The

workers’ compensation offset is included in the Social Security benefits that
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petitioner received in 2011. Therefore, we conclude that petitioner received

$34,349 in taxable Social Security benefits in 2011.

      Taxpayers may make an election with respect to the amount of a lump-sum

payment of Social Security benefits received during a taxable year in which the

portion of the payment is attributable to previous years. Sec. 86(e); Brady v.

Commissioner, T.C. Memo. 2013-1, at *6. This election provides an alternate

method for applying the statutory formula to determine the amount of Social

Security benefits includable in the taxpayer’s income. See sec. 86(e). Because

petitioner received a lump-sum payment of Social Security benefits during 2011

that was in part attributable to 2008, 2009, and 2010, they were eligible to make a

section 86(e) election on their tax return. Petitioners did not make a section 86(e)

election on their 2011 tax return.2

      When petitioner applied for Social Security benefits, part of his workers’

compensation benefits, which were otherwise excludable from gross income, were

treated as Social Security benefits pursuant to the provisions of section 86(d)(3).

This recharacterization caused petitioners’ tax to increase by more than the amount


      2
       Respondent provided a computation showing that petitioners would not
benefit from a sec. 86(e) election. Petitioners did not provide any such
computation. We presume that petitioners would not benefit from a sec. 86(e)
election.
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of increase in benefits received as a result of petitioner’s qualifying for Social

Security benefits.

      While the result appears harsh, our role is to enforce the laws as written and

interpreted. As the Supreme Court of the United States has instructed, the role of

the courts is to apply the statute as written. Sandifer v. U.S. Steel Corp., 571 U.S.

___, ___, 134 S. Ct. 870, 878 (2014); see also McCarthy v. Commissioner, T.C.

Memo. 2015-50, at *9 (and the cases cited thereat).

      We have considered the parties’ arguments and, to the extent not discussed

herein, we conclude the arguments to be irrelevant, moot, or without merit.

      To reflect the foregoing,


                                                     Decision will be entered

                                               for respondent.
