                  T.C. Summary Opinion 2005-57



                     UNITED STATES TAX COURT



     ANTHONY M. FLORES AND SANDRA L. FLORES, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 14147-04S.             Filed May 10, 2005.


     Anthony M. Flores and Sandra L. Flores, pro sese.

     Alan J. Tomsic, for respondent.



     ARMEN, Special Trial Judge:   This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time that the petition was filed.1   The decision to




     1
        Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for 2002,
the taxable year in issue. All monetary amounts are rounded to
the nearest dollar.
                                - 2 -

be entered is not reviewable by any other court, and this opinion

should not be cited as authority.

     Respondent determined a deficiency in petitioners’ Federal

income tax for the taxable year 2002 in the amount of $3,011.

     The only issue for decision by the Court is whether certain

workers’ compensation benefits received by petitioner Sandra L.

Flores (Mrs. Flores) are taxable as though they were Social

Security benefits.    We hold that they are by virtue of section

86(d)(3).

                              Background

     Some of the facts have been stipulated, and they are so

found.

     At the time that the petition was filed, petitioners resided

in Las Vegas, Nevada.

     The facts are not in dispute.

     In October 2000, Mrs. Flores was seriously injured at work

while employed by Citibank.    As a result of her injury, Mrs.

Flores began receiving workers’ compensation benefits in November

2000.    Mrs. Flores continued to receive workers’ compensation

benefits in 2002, which she received by check biweekly.

     At the time of her injury in October 2000, Mrs. Flores was

also covered by a long-term disability policy through her
                                - 3 -

employment with Citibank.2   Under the terms of the policy, if an

employee’s disability lasted for more than a year, the employee

was obliged to apply for Social Security benefits.     Accordingly,

in July 2002, Mrs. Flores applied for Social Security benefits,

and she began receiving benefits in October 2002 by direct

deposit to her bank account.    In 2002, Mrs. Flores received

Social Security benefits of $8,820, which included benefits of

$6,772 paid in 2002 for 2001.

     Mrs. Flores received a Form SSA-1099, Social Security

Benefit Statement, for 2002.    Box 5 of that form reported “net

benefits for 2002" of $20,675, which was described as follows:

         Paid by check or direct deposit      $8,820
         Worker’s compensation offset         11,855
         Benefits for 2002                   $20,675

     Petitioners attached the Form SSA-1099 to their 2002 Federal

income tax return.   Believing that the workers’ compensation

offset was not includable in their income, petitioners wrote the

following explanation of their position on the Form SSA-1099:

         Box 5 benefits paid 2001 & 2002 is $8,820.00.
         $11,854 paid by worker’s compensation not subject
         to income taxes, not paid by SSA.




     2
        Mrs. Flores paid her share of the premiums on this policy
through payroll deductions.
                               - 4 -

      In the notice of deficiency, respondent determined that the

workers’ compensation offset of $11,855 was includable in

petitioners’ income:

      Workers’ compensation benefits are generally not
      taxable if paid in place of wages lost as a result of
      work related accident or injury. However, workers’
      compensation benefits may be taxable if paid in place
      of retirement benefits such as Social Security or
      Railroad Retirement benefits. In this situation, the
      taxable portion of your benefits would be computed
      using the same method used for Social Security and
      Railroad Retirement.

                            Discussion

      Workers’ compensation is generally excludible 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 cause the reduction (the so-called

offset amount) is treated as though it were a Social Security
                                 - 5 -

benefit.   Sec. 86(d)(3).3   See Mikalonis v. Commissioner, T.C.

Memo. 2000-281; Willis v. Commissioner, T.C. Memo. 1997-290.       The

rationale for this provision appears in the legislative history

accompanying that enactment of section 86 by the Social Security

Amendments Act of 1983, Pub. L. 98-21, sec. 121, 97 Stat. 80:

          Your Committee’s bill provides that social
     security benefits potentially subject to tax will
     include any workmen’s compensation whose receipt caused
     a reduction in social security disability benefits.
     For example, if an individual were entitled to $10,000
     of social security disability benefits but received
     only $6,000 because of the receipt of $4,000 of
     workmen’s compensation benefits, then for purposes of
     the provisions taxing social security benefits, the
     individual will be considered to have received $10,000
     of social security benefits. [H. Rept. 98-25, at 26
     (1983).]

In other words, the purpose of section 86(d)(3) is to equalize

     3
           Sec. 86(d)(3) provides as follows:

     SEC. 86(d). Social Security Benefit.--

               *     *       *    *      *      *   *

              (3) Workmen’s compensation benefits
     substituted for social security benefits.–-For purposes
     of this section, if, by reason of section 224 of the
     Social Security Act * * *, any social security benefit
     is reduced by reason of the receipt of a benefit under
     a workmen’s compensation act, the term “social security
     benefit” includes that portion of such benefit received
     under the workmen’s compensation act which equals such
     reduction.

     At trial, Mrs. Flores testified that she received workmen’s
compensation in an amount greater than the $11,855 “offset” that
was identified in her 2002 Form 1099-SSA, described supra p.3.
In this regard, we emphasize that sec. 86(d)(3) serves to treat
workers’ compensation benefits as though they were Social
Security benefits only to the extent of the offset amount.
                               - 6 -

the Federal tax treatment of Social Security benefits that are

received by various taxpayers who may or may not be eligible to

receive workers’ compensation benefits.

     We acknowledge that Mrs. Flores applied for Social Security

benefits only because she was obliged to do so under the terms of

her long-term disability policy.     We also acknowledge that if

Mrs. Flores had not been so obliged, and if she had not actually

applied for Social Security benefits, then her workers’

compensation benefits would not have been subject to Federal

income tax.   See sec. 104(a)(1).    Under the circumstances, we can

appreciate petitioners’ dismay.     Nevertheless, as the Supreme

Court of the United States has instructed, we are dutybound to

apply the law as written by the Congress to the facts as they

occurred and not as they might have occurred.     See Commissioner

v. Natl. Alfalfa Dehydrating & Milling Co., 417 U.S. 134, 148-149

(1974).

     In view of the foregoing, we hold for respondent on the

legal issue presented.4

     Reviewed and adopted as the report of the Small Tax Case

Division.




     4
        We also note that respondent’s application of sec. 86 is
mathematically correct.
                         - 7 -

To reflect our disposition of the disputed issue,

                                 Decision will be entered

                         for respondent.
