                  T.C. Summary Opinion 2005-63



                     UNITED STATES TAX COURT



          ROBERT E. AND CAROL J. CAWVEY, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 9131-04S.             Filed May 24, 2005.


     Robert E. and Carol J. Cawvey, pro sese.

     Michael F. O’Donnell, for respondent.



     GOLDBERG, Special Trial Judge:   This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.   The decision to be

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

should not be cited as authority.   Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

effect for the year in issue.
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     Respondent determined a deficiency in petitioners’ Federal

income tax of $608 for the taxable year 2001.

     The issue for decision is whether certain worker’s

compensation benefits received by Carol J. Cawvey in lieu of

Social Security disability benefits are includable in

petitioners’ gross income for taxable year 2001 under section 86.

The adjustments resulting from the disallowance of a portion of

the deduction petitioners claimed for medical expenses are

computational and will be resolved by the Court’s holding on the

Social Security benefits issue.

                             Background

     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.    Petitioners resided in

Plainfield, Illinois, on the date the petition was filed in this

case.    Robert E. Cawvey appeared before the Court and presented

petitioners’ case.    Carol J. Cawvey (petitioner) did not appear.1

     During most of 2000, petitioner worked for Aramark, a

private food servicing company which provided employees to the

Illinois Department of Correction’s kitchen services.    On October

12, 2000, petitioner was injured in a work-related accident.    In

November of 2000, petitioner applied for and received State of


     1
      Petitioners had recently separated before trial; however,
all the parties agreed that Robert E. Cawvey was authorized to
represent Carol J. Cawvey’s interest.
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Illinois worker’s compensation benefits.   In 2001, petitioner

continued to receive worker’s compensation benefits of

$15,738.32.

     In 2001, petitioner’s attorney advised her to file for

Social Security Disability Insurance benefits.    In April of 2001,

petitioner applied for Social Security benefits.   According to

Form SSA-1099, Social Security Statement, issued by the Social

Security Administration, petitioner received Social Security

benefits of $4,422.40 for taxable year 2001.   Form SSA-1099 for

taxable year 2001 also shows that there was a worker’s

compensation offset in the amount of $4,422.40.    Petitioners did

not report any Social Security benefits on their joint Federal

income tax return for 2001.

     On April 12, 2004, respondent issued to petitioners a notice

of deficiency that determined petitioners failed to include in

gross income for the taxable year 2001 the amount of $3,7592 as a

result of adjustments for taxable Social Security benefits under

section 86.   Further, the determination resulted in computational

adjustments causing the disallowance of a portion of the

deduction claimed by petitioners for medical expenses.




     2
      Respondent calculated this amount as 85 percent of the
$4,422.40 in Social Security benefits for 2001.
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                               Discussion3

     As previously stated, the issue before the Court is whether

certain worker’s compensation benefits petitioner received in

lieu of Social Security disability benefits are includable in

petitioners’ gross income for taxable year 2001 under section 86.

     Petitioners maintain that since petitioner did not receive

an actual payment from the Social Security Administration during

2001 because of the offset of workmen’s compensation benefits

received in that year, it is unfair to include the offset amount

in their 2001 income.   Respondent maintains that although

petitioners did not receive an actual payment from the Social

Security Administration during 2001, they must nevertheless

include the offset amount in their 2001 income under section

86(d)(3).

     Gross income includes “all income from whatever source

derived” unless specifically excluded.       Sec. 61(a).   Generally,

gross income does not include “amounts received under workmen’s

compensation acts as compensation for personal injuries or

sickness”.   Sec. 104(a)(1).    Social Security benefits, however,

are included in gross income as provided by section 86.




     3
      We decide the issue in this case without regard to the
burden of proof. Accordingly, we need not decide whether the
general rule of sec. 7491(a)(1) is applicable in this case. See
Higbee v. Commissioner, 116 T.C. 438 (2001).
                                - 5 -

     Married taxpayers filing a joint return whose modified

adjusted gross income, plus one-half of their Social Security

benefits, exceeds $44,000 must include up to a maximum of 85

percent of their Social Security benefits in their gross income.

See sec. 86(a), (b), and (c).

     Respondent determined that 85 percent of the Social Security

benefits petitioner received for 2001 is includable in

petitioners’ gross income.   Petitioners do not dispute that

petitioner received worker’s compensation benefits in the amount

by which her Social Security benefits were offset.   Petitioners,

however, argue that the Social Security Administration never paid

the benefits reported as worker’s compensation offset, and thus

those amounts should not be included in petitioners’ gross

income.

     Section 86(d)(3) clearly provides that such offsets are

Social Security benefits for purposes of determining gross

income:

     if * * * 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.

     Section 86 was added to the Internal Revenue Code by the

Social Security Amendments of 1983, Pub. L. 98-21, sec. 121, 97

Stat. 80.   The House report states in relevant part:

     social security benefits potentially subject to tax will
     include any workmen’s compensation whose receipt caused a
                                - 6 -

     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).]

     Petitioners seem to argue that section 104(a)(1) should in

effect “trump” section 86.   However, the statutes must be read

together.   Section 104(a)(1) provides the general rule that

worker’s compensation benefits are not includable in gross

income.   Section 86(d)(3) provides the exception to this general

rule and states that the offset amount is included in income in

the same manner as a Social Security benefit.   This has the

effect of equalizing the Federal tax treatment of Social Security

benefits available to various taxpayers who may or may not be

eligible to receive worker’s compensation benefits.   See H. Rept.

98-25, supra at 26.

     Petitioners also argue that the operation of section

86(d)(3) is unjust.   This Court is not the proper place for this

argument.   We cannot evaluate the fairness of the law but must

apply it as it is written; it is up to Congress to address

questions of fairness and to make improvements to the law.

Metzger Trust v. Commissioner, 76 T.C. 42, 59-60 (1981), affd.

693 F.2d 459 (5th Cir. 1982).

     We have reviewed and found to be correct respondent’s

calculation of the portion of benefits includable in petitioners’
                                 - 7 -

gross income under section 86.    Accordingly, we uphold

respondent’s determination that petitioners’ gross income for the

taxable year 2001 is increased by $3,759 as a result of

adjustments for taxable Social Security benefits under section

86.

      Respondent’s computational adjustments to petitioner’s

claimed medical expenses will be decided by our holding on the

issue.

      Reviewed and adopted as the report of the Small Tax Case

Division.

                                         Decision will be entered

                                 for respondent.
