                         T.C. Memo. 2000-306



                       UNITED STATES TAX COURT



                 PATRICIA L. BALDWIN, Petitioner v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



       Docket No. 4471-99.                Filed September 27, 2000.



       Carolyn J. Jackson, for petitioner.

       Jennifer L. Nuding, for respondent.


                         MEMORANDUM OPINION


       GOLDBERG, Special Trial Judge:   Respondent determined

deficiencies in petitioner’s Federal income taxes and additions

to tax in the following amounts for the following taxable years:

                                   Additions to Tax
Year Deficiency     Sec. 6651(a)(1)   Sec. 6651(a)(2)    Sec. 6654(a)

1994    $4,549        $1,023.52              $1,023.52     $234.38
1995     2,869           645.52                 473.38      156.62
1996     3,344           752.40                 351.12      180.06
                                   - 2 -



       Unless otherwise indicated, section references are to the

Internal Revenue Code in effect for the years in issue, and all

Rule references are to the Tax Court Rules of Practice and

Procedure.

       After concessions by the parties,1 the sole issue for

decision is whether payments petitioner received for nursing and

attendant care services she provided to her permanently disabled

husband must be included in petitioner’s gross income for the

1994, 1995, and 1996 taxable years.

       This case was submitted fully stipulated pursuant to Rule

122.       The stipulation of facts and the attached exhibits are

       1
          Petitioner concedes that she received the following
amounts which are includable in gross income for 1994: (1)
Gambling winnings of $3,700; (2) patronage dividends of $1,026;
and (3) pensions/annuities of $1,266. Petitioner also concedes
that she received the following amounts which are includable in
gross income for 1995: (1) Patronage dividends of $320; and (2)
pensions/annuities of $504.
     Respondent makes the following concessions: (1) That only
$1,266 of the $2,532 petitioner received from the Social Security
Administration is includable in gross income for 1994; (2) for
the 1995 taxable year, that petitioner is not required to include
in gross income $300 of the payments reported as paid to
petitioner by Healthcare Corp. and that only $504 of the $1,968
petitioner received from the Social Security Administration is
includable in gross income; (3) that petitioner and Mr. Baldwin
were married during the years in issue and are therefore entitled
to married, filing jointly status for the 1994, 1995, and 1996
taxable years; (4) that petitioner’s son, Floyd, was a dependent
of petitioner and Mr. Baldwin during the 1994 and 1995 taxable
years and that petitioner’s children, Emma and Sam, were
dependents of petitioner and Mr. Baldwin during the 1994, 1995,
and 1996 taxable years; and (5) that petitioner is not liable for
the additions to tax pursuant to secs. 6651(a)(1), (2), and
6654(a).
                                 - 3 -

incorporated herein by this reference.    At the time of filing the

petition, petitioner resided in Remus, Michigan.

     Petitioner has been married to Tony L. Baldwin (Mr. Baldwin)

for more than 30 years, including the years in issue.    They have

7 children from their marriage.    Mr. Baldwin has been an employee

of General Motors Company, Buick Division (GM) since 1965,

working for the first 10-1/2 years in GM’s foundry without

difficulty.   It was not until after automation eliminated his

permanent position, requiring Mr. Baldwin to move from job

assignment to job assignment, that Mr. Baldwin began to

experience emotional problems.    These emotional problems

progressively worsened through late 1975 to early 1976.

Beginning in 1976, Mr. Baldwin sought medical and psychiatric

help from various doctors and hospitals.    Throughout 1976 to

1979, Mr. Baldwin took medical leave from his position at GM,

ranging from a few weeks to a few months at a time.    In late

1976, Mr. Baldwin was diagnosed with paranoid schizophrenia by

his attending physician.   Mr. Baldwin retired from GM on total

and permanent disability on June 1, 1979.

     On August 27, 1980, Mr. Baldwin filed a claim for worker’s

compensation benefits against GM for work-related injuries and

for total and permanent disability on a psychiatric basis.    Mr.

Baldwin filed an amended claim on October 21, 1980.    Both claims
                               - 4 -

were denied by an administrative law judge, and Mr. Baldwin

appealed the decision.

      On April 14, 1987, the Worker’s Compensation Appeals Board

(Appeals Board) reversed the decision of the administrative law

judge and found that Mr. Baldwin suffered from a work-related

disability and was totally and permanently disabled because of a

mental incapacity resulting from his employment with GM.    The

Appeals Board determined Mr. Baldwin’s date of injury was June 7,

1978.   Consequently, the Appeals Board ordered that Mr. Baldwin

receive compensation from October 27, 1978, pursuant to the

Michigan Worker’s Disability Compensation Act, Mich. Comp. Laws

section 418.315(1) (1985) (Michigan Act).   The Appeals Board

decision did not address attendant care expenses.

      During the beginning of Mr. Baldwin’s emotional and mental

problems, petitioner worked part-time but for no appreciable

period of time.   Beginning in 1980 and continuing through the

years in issue, petitioner provided attendant and nursing care

for Mr. Baldwin, which required more of her time as his symptoms

worsened.   Though petitioner is neither a registered nor a

licensed practical nurse, she was able to care for Mr. Baldwin

by:   (1) Administering medication; (2) watching for early warning

signs of paranoia, depression, or behavioral changes; (3)

monitoring his sleep patterns; (4) ensuring that he did not drink

alcoholic beverages; (5) taking him to the doctor; and (6)
                               - 5 -

generally following the directions of Mr. Baldwin’s doctors and

nurses.   Petitioner also took care of their 7 children and

managed their small farm when she was not attending to her

husband’s medical needs.

     On May 3, 1988, Mr. Baldwin made a written claim for

expenses relating to nursing and attendant care provided by

petitioner from 1980 onward pursuant to the Michigan Act.     In

December of 1989, a magistrate of the Michigan Bureau of Worker’s

Disability Compensation found that petitioner provided attendant

and nursing care to Mr. Baldwin as defined under the Michigan Act

and awarded petitioner reimbursement for services rendered.     The

magistrate’s award provided that petitioner was entitled to be

reimbursed in an amount equal to $8 per hour for 12 hours a day

and $12 an hour for hours in excess of 40 hours per week.2    The

magistrate estimated that petitioner spent 12 hours per day

providing care for Mr. Baldwin and held that the hourly rates and

number of hours per week shall be payable until further notice.

Both Mr. Baldwin and GM appealed the decision.

     The Worker’s Compensation Appellate Commissioner of the

State of Michigan (Appellate Commissioner), upheld the

magistrate’s decision except that the Appellate Commissioner



     2
          For care provided after July 30, 1985, petitioner’s
reimbursable time was limited to 56 hours per week. Mich. Comp.
Laws section 418.315(1) (1985).
                                - 6 -

modified the date on which payment for attendant and nursing care

services would begin and held that petitioner would receive

payment for services rendered from September 19, 1981, and not

from 1980 as ordered by the magistrate.3

     During the years in issue, petitioner received attendant and

nursing care payments at a rate of $2,218.67 per month from GM’s

insurance carrier, Healthcare Compare Corporation4 (Healthcare)

for a total of $26,624, $24,405,5 and $28,842 during 1994, 1995,

and 1996, respectively, pursuant to the Appellate Commissioner’s

order.    During 1994, 1995, and 1996, petitioner received 12

payments, 11 payments, and 13 payments, respectively.    All

payments received from Healthcare were made payable to petitioner

solely in her name.

     In 1995, Healthcare began reporting the payments it made to

petitioner to the Internal Revenue Service (IRS) as “medical

payments” by issuing Form 1099 to petitioner.   According to

petitioner, Healthcare’s reports to the IRS were inconsistent

with previous representations made by Healthcare’s predecessor


     3
          Baldwin v. GMC, 5 MIWCLR par. 1014 (Mich. Workers’
Comp. App. Commn., 1992).
     4
            Healthcare Compare Corp. is currently named First
Health.
     5
            Though the notice of deficiency for 1995 states that
Healthcare   reported to the Internal Revenue Service payments to
petitioner   of $24,705 for the 1995 taxable year, the parties
stipulated   that petitioner received payments from Healthcare in
the amount   of $24,405 in 1995.
                                - 7 -

corporation which allegedly told her that the attendant and

nursing care payments were not includable in petitioner’s gross

income and did not require the issuance of a Form 1099.

     In separate notices of deficiency for the 1994, 1995, and

1996 taxable years, respondent determined that the payments

petitioner received from Healthcare were properly includable in

petitioner’s gross income.    Petitioner did not file her Federal

income tax returns for each year in issue prior to the mailing of

the notice of deficiency for the specific year.

     It is petitioner’s contention that the payments from

Healthcare are excludable from her gross income because it is

considered compensation for personal injuries, as permitted under

section 104(a)(1).   In the alternative, petitioner argues that

the payments she received under the Michigan worker’s

compensation order are a direct result of Mr. Baldwin’s personal

injury arising out of his course of employment with GM.

Therefore, the reimbursement would likewise not be includable in

her gross income for the years in issue.

     Respondent contends that Healthcare’s payments awarded to

petitioner under the Michigan Act were not received on account of

personal injuries or sickness of the petitioner as required under

section 104(a)(1).   Instead, the payments were compensation to a

familial attendant-care provider for services provided to a

disabled former employee.    Therefore, the payments are not
                                 - 8 -

excludable from petitioner’s gross income under section

104(a)(1).   We agree with respondent.

     Section 61(a) broadly defines gross income as “all income

from whatever source derived”.    Compensation for services is

expressly included within this broad definition.    See sec.

61(a)(1).

     Under section 104(a)(1), amounts received as worker’s

compensation are excluded from gross income.    However, the Court

has held that “statutes granting tax exemptions should be

strictly construed.”   Kane v. United States, 43 F.3d 1446, 1449

(Fed. Cir. 1994); see Commissioner v. Jacobson, 336 U.S. 28, 39

(1949).   A taxpayer seeking a deduction or exclusion from gross

income “must be able to point to an applicable statute and show

that he comes within its terms.”     New Colonial Ice Co. v.

Helvering, 292 U.S. 435, 440 (1934).

     Section 104(a)(1) excludes from gross income “amounts

received under workmen's compensation acts as compensation for

personal injuries or sickness”.    Section 1.104-1(b), Income Tax

Regs., includes amounts received by an employee “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.”    Therefore, in order to

resolve this matter, we must consider the relevant provisions of

the worker’s compensation act under Michigan law and determine
                                 - 9 -

the reason why the payments are paid.    See Givens v.

Commissioner, 90 T.C. 1145, 1148, 1152 (1988); Dyer v.

Commissioner, 71 T.C. 560, 562 (1979).

     In this case, the payments received by petitioner for

attendant and nursing care services rendered to her husband were

paid under a claim filed by Mr. Baldwin with the Michigan Bureau

of Worker’s Disability Compensation pursuant to the Michigan Act.

The section provides, in part, that:

          The employer shall furnish, or cause to be
          furnished, to an employee who receives a
          personal injury arising out of and in the
          course of employment, reasonable medical,
          surgical, and hospital services and
          medicines, or other attendance or treatment
          recognized by the laws of this state as
          legal, when they are needed...Attendant or
          nursing care shall not be ordered in excess
          of 56 hours per week if the care is to be
          provided by the employee’s spouse, brother,
          sister, child, parent or any combination of
          these persons.

This statute requires employers to furnish “reasonable medical”

or “other attendance or treatment” services to a disabled

employee as they are “needed”.    In holding that petitioner was

entitled to payment for attendant and nursing care, the Appellate

Commissioner considered the type of particular services rendered

by petitioner, the number of hours of day petitioner provided

those services, and the value of such services.    Petitioner’s

services to Mr. Baldwin clearly falls under this statute as

exhibited in the Appellate Commissioner’s order.
                                - 10 -

     The Michigan Supreme Court has addressed the nature and

purpose of the payments made under this statute in Kushay v.

Sexton Dairy Co., 228 N.W.2d 205 (Mich. 1975).     In Kushay, the

Court found that where the wife of a disabled husband, who became

totally and permanently disabled, performed services of attendant

care under the statute, the employer has a “duty to compensate

him or her as the person who discharges the employer’s duty to

provide them.”   Id. at 74.    If services are rendered as provided

by the statute, by the spouse or a third party, the employer has

an obligation to pay for them.     Id. at 74.   Also, in Dunaj v.

Harry Becker Co., 217 N.W.2d 397, 399-400 (Mich. Ct. App. 1974),

the Court of Appeals of Michigan held that medical services

provided by a claimant’s wife were “compensable to the same

extent as they would be if the services had been rendered by

someone other than the wife.”

     In order to receive payments as an attendant-care provider,

petitioner had to provide attendant and nursing care services to

her husband.   Likewise, GM was under an obligation to furnish

payments for attendant and nursing care services rendered by

petitioner or a third party.

     This Court has addressed a similar issue in Bannon v.

Commissioner, 99 T.C. 59 (1992), where a California statute

allowed taxpayer to receive welfare benefits for providing

nonmedical care to her disabled adult daughter, the recipient of
                                - 11 -

the welfare payments.     The Court found that taxpayer’s daughter

employed taxpayer to provide services, that payments were

disbursed in the name of the disabled daughter during the first

half of the year under an advance payment method, whereas,

payments were directly disbursed to petitioner-health care

provider and the other provider, during the last half of the

year.   At all times during the year in issue, the agency

disbursing the funds considered the disabled daughter as the

recipient of the benefits and the employer of the care providers.

Therefore, the payments were includable in the taxpayer’s gross

income as compensation.    See id. at 66.

     Moreover, petitioner’s case is almost identical to the facts

in Goldman v. United States, 79 F. Supp. 2d 1356 (N.D. Ga. 1998),

affd. per curiam without published opinion 196 F.3d 1262 (11th

Cir. 1999).   In Goldman, Mrs. Goldman received reimbursement

under a similar Florida statute for providing attendant care to

her fully disabled husband.    Mrs. Goldman did not include amounts

received for services on their joint return because she argued

the payments were fully excludable under section 104(a)(1).     In a

refund action, the U.S. District Court for the Northern District

of Georgia, applying Florida law, found that an award of

attendant-care services for care given by taxpayer was properly

included in gross income as compensation for services under the

doctrine of anticipatory assignment.     The Court held that the
                              - 12 -

fact that checks were received in Mr. Goldman’s name from the

employer’s insurance carrier did not necessitate exclusion under

section 104(a)(1).   The true earner was Mrs. Goldman for the

services she provided to her disabled husband under the statute.

     Clearly, in this case, petitioner is not the intended

recipient of amounts received under a workmen’s compensation act

as specified in section 104(a)(1).     There is no question that

amounts received by Mr. Baldwin from the workmen’s compensation

award falls under the section 104(a)(1) exclusion from gross

income.

     However, because the payments to petitioner were for

attendant and nursing care services rendered by petitioner to Mr.

Baldwin, the amounts paid to petitioner do not constitute amounts

“received under workmen's compensation acts as compensation for

personal injuries or sickness” pursuant to section 104(a)(1) or

amounts received by an employee “under a statute in the nature of

a workmen’s compensation act” pursuant to section 1.104-1(b),

Income Tax Regs.   Petitioner received amounts from GM as

compensation for services rendered, albeit to her husband, as an

attendant-care provider.   The source of her income is derived

from a separate State statute for assistance as an attendant-care

provider and does not arise from the same workmen’s compensation

statute which awarded Mr. Baldwin’s workmen’s compensation

benefits.   The payments herein are compensation for attendant and
                              - 13 -

nursing care services rendered to an individual who is receiving

disability payments.   Respondent is sustained on this issue.

     In the alternative, petitioner apparently contends that the

payments for the years in issue should be excludable from gross

income because of a prior representation from Healthcare’s

predecessor corporation.   Though Healthcare’s predecessor

corporation may have made representations that the payments

received by petitioner were not includable in gross income, the

prior representation is irrelevant as to whether the payments are

includable in gross income for the years in issue.

     Finally, petitioner’s counsel in Petitioner’s Opening Brief

contends for the first time that the payments from Healthcare are

excludable from petitioner’s gross income for the years in issue

as amounts received pursuant to an insurance plan under section

105(b).

     Respondent contends that because the applicability of

section 105(b) was not raised until Petitioner’s Opening Brief,

the record is devoid of any evidence regarding whether or not

section 105(b) is applicable in this case.

     The rule that a party may not raise a new issue on brief is

not absolute, but it is founded upon the determination as to

whether considerations of surprise and prejudice require that a

party be protected from having to face a belated confrontation

which precludes or limits that party's opportunity to present
                              - 14 -

pertinent evidence.   See Ware v. Commissioner, 92 T.C. 1267, 1268

(1989), affd. 906 F.2d 62 (2d Cir. 1990).

     Though petitioner has failed to establish in the record

before us that the Michigan Worker’s Compensation Act qualifies

as “an accident and health plan” as defined in section 105(e),

and has further failed to establish that the payments she

received from Healthcare are “amounts received by an employee”

pursuant to section 105(a), the issue can be decided based solely

on the language of the relevant statute, and we shall therefore

allow petitioner to argue her reliance on section 105 in her

brief.

     Petitioner’s contention that her payments are excludable

from gross income for the years in issue pursuant to section

105(b) is not supported by the language of section 105.     Section

105(a) excludes certain “amounts received by an employee” from

gross income and section 105(b) excludes “amounts referred to in

subsection (a) if such amounts are paid, directly or indirectly,

to the taxpayer to reimburse the taxpayer” for incurred medical

expenses.   Section 105 concerns the tax treatment of the employee

and not the attendant-care provider.   Petitioner in this case is

clearly not a taxpayer being reimbursed for medical expenses but

an attendant-care provider being paid for services rendered to

such a taxpayer.
                              - 15 -

     We agree with respondent’s contention that the payments to

petitioner were received by petitioner in her role as a care

provider to Mr. Baldwin and that she was required to provide

attendant and nursing care in order to receive the payments as

compensation for services rendered to Mr. Baldwin.    Although we

are sympathetic with petitioner’s circumstances, we are

constrained by the Michigan statute and pertinent caselaw in

defining petitioner’s income for attendant-care services to her

husband as compensation.   The payments are therefore includable

in petitioner’s gross income for the years in issue as

compensation for the attendant and nursing care services she

provided to Mr. Baldwin.

     Upon the basis of the record, we therefore hold that the

payments to petitioner from Healthcare are includable in her

gross income for the years in issue.

     To reflect the foregoing,

                                         Decision will be entered

                                    under Rule 155.
