                        T.C. Memo. 2000-160



                      UNITED STATES TAX COURT



                ASA EUGENE PEARSON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 15981-98.                       Filed May 18, 2000.



     Asa Eugene Pearson, pro se.

     George E. Gasper, for respondent


                        MEMORANDUM OPINION


     GOLDBERG, Special Trial Judge:     Respondent determined a

deficiency in petitioner’s Federal income tax of $1,453 for the

taxable year 1995.   Unless otherwise indicated, 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.
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     After a concession,1 the issue for determination is whether

disability payments received by petitioner in 1995 are includable

in gross income.

     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.   At the time of filing the

petition, petitioner resided in Fort Worth, Texas.

     In 1972, petitioner began working for General Motors

Corporation (General Motors) at its Arlington, Texas, assembly

plant.   As an employee, petitioner was included in General

Motors’ long-term disability plan (the disability plan) which

General Motors funded through Metropolitan Life Insurance Company

(MetLife).   General Motors paid all the policy premiums and did

not deduct the cost of the premiums from employee wages.

     Because of the repetitious nature of the work and other

stressful situations at the plant, petitioner began to suffer

from severe depression which affected his ability to work.    By

1985, his condition worsened, and petitioner was on sick leave

for most of the year.




     1
          At trial, petitioner failed to offer any evidence,
whatsoever, contesting the Commissioner’s determination in the
notice of deficiency that he failed to report income from General
Motors of $72 for the 1995 taxable year. Accordingly, petitioner
is deemed to have conceded the issue. See Rules 149(b), 142(a).
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     On January, 1, 1986, petitioner retired from General Motors

and began receiving monthly disability benefits.   Petitioner

received his retirement and his disability benefits in two

separate monthly checks.   Petitioner received one check from

General Motors and one check directly from MetLife.   The payments

petitioner received from MetLife were payments made under the

disability plan and were based on the number of years petitioner

was employed by General Motors.

     Though petitioner initially included his disability benefit

payments received from MetLife in gross income on his Federal

income tax returns, on advice of a tax preparer, petitioner filed

a Form 1040X, Amended U.S. Individual Income Tax Return, for the

1987 taxable year and reported the MetLife payments as nontaxable

disability income pursuant to sections 105(c)(1), 105(c)(2), and

section 1.105-3, Income Tax Regs., and requested a refund for

excess income tax withholding.

     The Internal Revenue Service (IRS) allowed the requested

amounts as overpayments that it offset against outstanding income

tax liabilities.   Petitioner continued to request a refund for

excess income tax withholding for every taxable year from 1987,

up to, and including, the year in issue.   Once petitioner’s

income tax liabilities were paid in full, the IRS refunded the

balance of the claimed excess withholding for tax years up to,

and including, 1995.
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     Petitioner testified that sometime after 1991 an IRS

representative told him to stop reporting the MetLife payments on

his Federal income tax return because the payments constituted

nontaxable income.   In accordance with the advice he purportedly

received from the IRS, petitioner stopped reporting the payments

from MetLife.

     In 1996, petitioner received a Form W-2, Wage and Tax

Statement, from MetLife reporting the amount he had received from

MetLife for the 1995 taxable year.     Petitioner did not report the

1995 payments from MetLife and did not attach the Form W-2 he

received from MetLife to his 1995 return.

     In the notice of deficiency, respondent determined that

petitioner failed to report $72 of taxable wages from General

Motors in 1995, and further determined that petitioner should

have included $9,633, the entire amount of MetLife’s 1995

payments to petitioner, in gross income under section 105(a) for

the 1995 taxable year.

     Gross income does not include amounts received through

accident or health insurance for personal injuries or sickness to

the extent such amounts are:   (1) Attributable to contributions

by the employer which were includable in the gross income of the

employee, or (2) paid for by the employee.    See sec. 104(a)(3).

     Section 105(a) provides, however, that amounts received by

an employee through accident or health insurance are includable
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in the gross income of the employee to the extent such amounts

are:    (1) Attributable to contributions by the employer which

were not includable in the gross income of the employee, or (2)

paid by the employer.

       Petitioner concedes that the disability insurance premiums

were paid by General Motors and that he did not include those

premiums in his gross income but contends that the 1995 payments

from MetLife were disability payments pursuant to section 105(c),

and, therefore, excludable from gross income.

       Section 105(c) provides as follows:

            SEC. 105(c).   Payments Unrelated to Absence From
       Work.--

            Gross income does not include amounts referred to
       in subsection (a) to the extent such amounts--

            (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.

       In order to qualify for the section 105(c) exception, the

payments to petitioner must satisfy both paragraphs (1) and (2)

of section 105(c).    Section 105(c)(2) itself has two parts that

must be satisfied:    (1) The payments to the taxpayer must be

computed with reference to the nature of the injury, and (2) the

payments must be computed without regard to the period the
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taxpayer is absent from work.    With respect to the first part of

section 105(c)(2), Rosen v. United States, 829 F.2d 506, 509 (4th

Cir. 1987), states as follows:

          A review of the cases indicates that for payments to be
     excludible from income under section 105(c), the instrument
     or agreement under which the amounts are paid must itself
     provide specificity as to the permanent loss or injury
     suffered and the corresponding amount of payments to be
     provided. * * * exclusion is permitted only under plans
     which vary benefits to reflect the particular loss of bodily
     function. * * *

     Petitioner has been unable to establish that the disability

plan payments he received from MetLife comport with the

requirements of section 105(c).    Indeed, petitioner concedes that

the monthly payments from MetLife are computed based on the

number of years of credited service petitioner had at General

Motors and not with regard to any injury as required by section

105(c)(2).

     On the basis of the record, we find that the disability plan

payments petitioner received from MetLife are not excludable from

gross income pursuant to section 105(c).   Since we find that on

the basis of the record the disability payments fail to satisfy

section 105(c)(2), we need not decide whether they satisfy

section 105(c)(1).

     In the alternative, petitioner contends that even if we find

that the disability payments are not excludable from gross income

pursuant to section 105(c), the disability plan payments are part
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of a wage continuation plan and are therefore nontaxable pursuant

to section 105(d).

     Pursuant to section 105(d), during years for which it was in

effect, payments made under wage continuation plans could be

excluded from gross income under certain conditions.    Section

105(d), however, was repealed, effective for taxable years after

1983 by the Social Security Act Amendments of 1983, Pub. L.

98-21, sec. 122(b), 97 Stat. 85.

     Finally, petitioner contends that the IRS refunded his taxes

for prior years after he filed an amended return in 1987 and that

by such action the IRS implicitly recognized that the MetLife

payments were nontaxable.   We do not agree.   Petitioner has

failed to establish the reason for refunds he received in prior

years.   However, it is well established that even if petitioner

had presented proof that respondent may have overlooked or

accepted the tax treatment of certain items in previous years,

respondent is not precluded from correcting that error in

subsequent years with respect to the same taxpayer.    See Rose v.

Commissioner, 55 T.C. 28, 32 (1970).

     At the conclusion of the trial, the Court instructed

respondent to contact MetLife in order to get an accurate

accounting of disability benefits paid to petitioner during the

1995 taxable year.   In an apparent answer to respondent’s query,

MetLife sent petitioner a Form W-2c, Statement of Corrected
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Income and Tax Amounts, for the 1995 taxable year, which reported

that petitioner had received only $8,257.08 in disability

payments and not $9,633.26 as stated on the previously issued

1995 Form W-2.   Accordingly, we find that petitioner received

$8,257.08 from MetLife and hold that such amount is taxable

income pursuant to section 105(a).

     To reflect the foregoing,

                                              Decision will be entered

                                         under Rule 155.
