                   T.C. Summary Opinion 2002-157



                      UNITED STATES TAX COURT



                 PETER JOHN MIHOK, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No.   5260-01S.             Filed December 26, 2002.


     Peter John Mihok, pro se.

     Brook D. Remick, for respondent.



     COUVILLION, Special Trial Judge:   This case was heard

pursuant to section 7463 in effect when the petition was filed.1

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

and this opinion should not be cited as authority.

     Respondent determined a deficiency of $2,391 in petitioner's

1998 Federal income tax.


     1
          Unless otherwise indicated, section references
hereafter are to the Internal Revenue Code in effect for the year
at issue.
                                - 2 -


     After concessions by petitioner of unreported interest

income, a State income tax refund, and a retirement income

distribution, the sole issue for decision is whether, under

section 86(a), Social Security benefits for the year at issue are

includable in petitioner's gross income where a portion of such

benefits includes overpayments that must be repaid to the Social

Security Administration due to excess earnings by petitioner

during the year at issue.

     Some of the facts were stipulated.   Those facts and the

accompanying exhibits are so found and are incorporated herein by

reference.   Petitioner's legal residence at the time the petition

was filed was Weslaco, Texas.

     Petitioner attained the age of 65 on July 1, 1996.    He

applied for and began receiving retirement Social Security

benefits as of that date.   Petitioner continued in gainful

employment as an aeronautical engineer and was employed through

the remainder of 1996, 1997, 1998, and 1999.    At the time of

trial, petitioner was no longer employed.

     Because of petitioner's continued employment, his Social

Security benefits were overpaid in each of the years 1996, 1997,

and 1998.    The overpayments were paid back through a reduction in

petitioner's monthly Social Security benefits.    From August 1998

through August 1999, all of petitioner's monthly benefits were

applied toward the accumulated overpayment.    From October 1999
                                - 3 -


through September 2000, no reductions were made to his benefits;

however, in October 2000, regular reductions of $100 per month

were made to apply against new overpayments in benefits.    At the

time of trial, petitioner still owed a balance of approximately

$1,000, which was being reduced by the $100 monthly deduction

from his Social Security benefits.

     For the year at issue, 1998, petitioner's Social Security

benefits for that year totaled $22,547 before any reductions to

offset prior overpayments of benefits.    For that year, $12,355

was withheld from petitioner's benefits and applied to the

overpayments.    Thus, petitioner was paid a net amount of $10,192

during 1998.    Because petitioner was gainfully employed during

1998, and his earnings that year, as in past years, exceeded the

allowable amount under Social Security, he continued accruing an

overpayment of benefits.    The amount of the overpayments for 1998

could not be determined until the succeeding year, 1999.

     For the year 1998, the Social Security Administration issued

a Form SSA-1099, Social Security Benefit Statement, to

petitioner, which reflected total benefits to him of $22,547 for

1998 less reductions of $12,355 that were applied to reduce the

overpayments in benefits to petitioner in prior years.    The Form

SSA-1099 reflected net taxable benefits of $10,192 ($22,547 less

$12,355).
                               - 4 -


     On his Federal income tax return for 1998, petitioner did

not include in gross income any Social Security retirement

benefits for that year.   In the notice of deficiency, respondent

determined that the net Social Security benefits of $10,192 paid

to petitioner during 1998 constituted income, and, pursuant to

section 86(a), $8,663.20 of that amount was taxable income.

Petitioner does not dispute the net amount of $10,192 he received

during 1998.   He argues, however, that the net amount paid to him

includes amounts representing an overpayment to him for his

excess earnings during 1998, and, therefore, he should not be

liable for income tax on benefits that have to be paid back to

the Social Security Administration through reductions in his

Social Security benefits in subsequent years.

     There is no dispute that, under the formula provided in

section 86(a), the taxable portion of petitioner's Social

Security benefits for 1998 is $10,192, the net amount petitioner

received after the reduction of $12,355 for overpayments in

benefits for years prior to 1998.   Additionally, there is no

dispute that petitioner's earnings during 1998 were also in

excess of allowable earnings for that year that would cause

Social Security benefits payable in future years to be reduced to

offset the excess benefits paid to petitioner during 1998.    As

noted above, petitioner's argument is that, because some of the

net benefits paid to him during 1998 will be affected because of
                               - 5 -


his excess earnings during 1998, he should not be required to

include in income the net benefits paid to him during 1998.

     The Court rejects petitioner's argument.   Section

86(d)(2)(A) provides:


     (2) Adjustment for repayments during year.--

          (A) In general.–-For purposes of this section, the
     amount of social security benefits received during any
     taxable year shall be reduced by any repayment made by the
     taxpayer during the taxable year of a social security
     benefit previously received by the taxpayer (whether or not
     such benefit was received during the taxable year).


Thus, it is evident from section 86(d)(2)(A) that a taxpayer is

allowed a reduction, for tax purposes, of any repayment of

benefits made during the taxable year; however, there is no

provision in the statute that allows an additional reduction for

excess benefits paid that year due to the taxpayer's excess

earnings that year.   Petitioner's employment earnings during 1998

were not known until the close of that year and only then could

it be determined whether those earnings constituted excess

earnings that would cause an overpayment of Social Security

benefits.   It is well settled that income is taxable when it has

been actually or constructively received.   Poczatek v.

Commissioner, 71 T.C. 371, 376 (1978) (citing N. Am. Oil Consol.

Co. v. Burnet, 286 U.S. 417 (1932)).   Petitioner actually

received $10,192 in Social Security benefits during 1998.    That
                              - 6 -


amount is includable in petitioner's income for 1998.    To the

extent any portion of that amount represented an overpayment due

to petitioner's excess employment earnings, petitioner is

provided relief in the following year by a reduction in the

taxable portion of his benefits.2   Respondent, therefore, is

sustained on this issue.

     Reviewed and adopted as the report of the Small Tax Case

Division.



                                      Decision will be entered

                              for respondent.




     2
          The Form SSA-1099 issued by the Social Security
Administration to petitioner for 1999 reflected total benefits of
$31,688, benefits repaid to the Social Security Administration of
$28,792, and net taxable benefits of $2,896. Thus, for the year
1999, petitioner was allowed an offset or reduction of his Social
Security benefits for the overpayments to him during 1998 and
prior years.
