                        T.C. Memo. 2011-132



                      UNITED STATES TAX COURT



         PAUL EDWARD & DIANE M. POLLARD, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 1619-09.               Filed June 14, 2011.



     Paul Edward Pollard and Diane M. Pollard, pro sese.

     Robert V. Boeshaar, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     COHEN, Judge:   Respondent determined a deficiency of $3,003

in petitioners’ Federal income tax for 2006 resulting from

petitioners’ failure to report Social Security benefits received

by Paul E. Pollard (petitioner).   Unless otherwise indicated, all

section references are to the Internal Revenue Code.
                                -2-

                         FINDINGS OF FACT

     Some of the facts have been stipulated, and the stipulated

facts are incorporated by this reference.    Petitioners resided in

Washington when they filed their petition.

     During 2006, petitioner received payments from the Social

Security Administration (SSA), including a lump-sum payment

attributable to earlier years and monthly payments for 2006.

Petitioners did not report any of the payments on their joint

Federal income tax return for 2006 and did not calculate the

taxable amount of petitioner’s benefits; thus they did not elect

to use an alternative method applicable to lump-sum payments.

Petitioners’ reported adjusted gross income from other sources

was $41,482.

     The SSA reported to the Internal Revenue Service (IRS) that

its payments to petitioner totaled $40,745 during 2006 and that

petitioner repaid $4,206 that year, for a net payment of $36,539.

Subsequent information provided by the SSA indicated that

petitioner received $35,477 during 2006, because $1,062 was

deducted for Medicare, and that $25,465 paid in 2006 was related

to 2001.   The determined deficiency was calculated by including

taxable benefits of $19,389 and making a computational adjustment

to petitioners’ claimed medical expense deduction.
                                -3-

                              OPINION

     Section 86 provides that gross income for a taxable year of

any taxpayer includes up to 85 percent of Social Security

benefits received during the taxable year.   Amounts received as

Social Security disability benefits are includable in the

taxpayer’s income.   Reimels v. Commissioner, 123 T.C. 245, 247-

248 (2004), affd. 436 F.3d 344 (2d Cir. 2006).

     Section 86(a) provides that if the taxpayer’s modified

adjusted gross income plus one-half of the Social Security

benefits received by the taxpayer exceeds the adjusted base

amount, then gross income includes the lesser of:   (1) The sum of

(a) 85 percent of such excess, plus (b) the lesser of (i) one-

half of the Social Security benefits received during the year or

(ii) one-half of the difference between the adjusted base amount

and the base amount of the taxpayer; or (2) 85 percent of the

Social Security benefits received during the taxable year.     Sec.

86(a)(2).   With respect to a married taxpayer who files a joint

return, the base amount and the adjusted base amount are $32,000

and $44,000, respectively.   Sec. 86(c)(1)(B), (2)(B).   The

taxable benefits determined in the statutory notice, $19,389, are

consistent with the formula provided in the statute.

     In the petition, petitioners conceded that the amount paid

to petitioner in 2006 was $35,477 but suggested that the

disagreement related to the $4,206 repaid to the SSA that year.
                                 -4-

Repayments during the taxable year reduce the amount includable

in income.   Sec. 86(d)(2).   The statutory notice calculation

reflected that reduction before the formula was applied.

     During his testimony at trial, petitioner denied receiving

the amount the SSA reported to the IRS for 2006.     He claimed that

his bank records did not reflect deposits of the amount reported

and that he had not “even to date” seen a form reporting 2006

payments to the IRS.   Petitioner’s testimony contradicted the

parties’ express stipulation that the SSA reported to the IRS

that in 2006 it paid petitioner $36,539 ($40,745 less $4,206 for

repayment during 2006).   Moreover, a statement from the SSA

regarding amounts it paid to petitioner during 2006 was attached

to the stipulation as an exhibit.      Petitioner did not produce his

bank records at trial or when given the opportunity to do so

subsequent to trial, and the inconsistencies in the record remain

unexplained.

     Because of inconsistencies in the record, the Court invited

a supplemental stipulation after the case was submitted.     The

record was reopened to admit copies of letters petitioner sent to

the IRS to explain his position.    It appears from those letters

that petitioner is seeking to exclude from 2006 income a lump-sum

amount paid by the SSA in 2006 pursuant to an award of disability

benefits for earlier years.
                                 -5-

     Taxpayers may make an election with respect to the amount of

a lump-sum payment of Social Security benefits received during

the taxable year in which a portion is attributable to previous

years.   Sec. 86(e).   Section 86(e) provides that if the election

is made, the amount included in gross income for the taxable year

of receipt must not exceed the sum of the increases in gross

income for those previous taxable years that would result from

taking into account the portion of the benefits attributable to

the previous taxable years.

     Section 86(e) is consistent with the general rule that

taxpayers such as petitioners who use the cash receipts and

disbursements method of accounting must include an item in gross

income when it is actually or constructively received.   Sec.

451(a); sec. 1.451-1(a), Income Tax Regs.   Thus a lump-sum

payment of Social Security benefits is to be included in gross

income in the year in which the payment is received rather than

in the years to which the payment is attributable, to the extent

that application of the formula results in a taxable amount.     The

election merely provides an alternative method of applying the

formula to determine the taxable portion of the Social Security

benefits.

     Petitioners have not made the election permitted by section

86(e).   They failed to report any of the benefits on their 2006

tax return.   There is no information in the record concerning
                                 -6-

their adjusted gross income for 2001 or any year other than 2006,

so we cannot determine whether the election would have benefited

petitioners.    (Petitioner disputes the total Social Security

benefits received in 2005 and 2006 and has referred to

information about benefits paid in 2005, but 2005 is not before

the Court and there is no information about petitioners’ other

income for that year.)    In any event, the election would affect

the computation of tax only for 2006; petitioners are not

entitled to exclude altogether amounts received in 2006 but

attributable to a different year.

     There is neither evidence nor authority suggesting that

petitioner’s taxable Social Security benefits for 2006 are less

than $19,389.    Thus,


                                       Decision will be entered

                                 for respondent.
