                        T.C. Memo. 2007-217



                      UNITED STATES TAX COURT



    THEODORE MAJOR GREEN AND JACQUELINE GREEN, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5216-06.                Filed August 7, 2007.


     Theodore Major and Jacqueline Green, pro sese.

     Gavin L. Greene, for respondent.



                        MEMORANDUM OPINION

     SWIFT, Judge:   This matter is before us on respondent’s

motion for summary judgment under Rule 121.

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for 2003, and all Rule

references are to the Tax Court Rules of Practice and Procedure.
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     The issues for decision are:   (1) Whether taxable Social

Security benefits petitioner Jacqueline Green received in 2003

should be treated as nontaxable workmen’s compensation benefits;

and (2) whether petitioners may deduct from 2003 income $11,068

relating to a $166,013 damage award judgment that Jacqueline

Green never received and that has now been discharged in

bankruptcy.

     Hereinafter, references to petitioner in the singular are to

petitioner Jacqueline Green.


                            Background

     At the time the petition was filed, petitioners resided in

Moorpark, California.   From 1985 to September 19, 2005, Mr. Green

worked as a tax auditor for respondent.


Petitioner’s Social Security Benefits

     Prior to November 12, 1989, petitioner worked on a General

Motors assembly line.

     In November of 1989 petitioner was injured while shopping

for groceries.   This was unrelated to her employment at General

Motors Corporation (General Motors).     The injury was caused by a

shopping cart under the control of another person.    Injuries

petitioner sustained therefrom apparently prevented petitioner

from further assembly line work at General Motors.    Petitioner

continued to work for General Motors but as a decal assembler.
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     On November 7, 1990, petitioner filed a lawsuit for personal

injury damages against the person who was pushing the shopping

cart.

     On or about August 27, 1991, petitioner was involved in

another accident, this time while at work at General Motors, as a

result of which petitioner sustained additional injuries.

Petitioner’s injuries required surgery and left her unable to

work.

     On August 6, 1992, petitioner filed a claim for Social

Security disability benefits, and on December 17, 1993,

petitioner began receiving Social Security disability benefits.

     In addition to her claim for Social Security disability

benefits, petitioner filed a claim for California workmen’s

compensation benefits.   The record does not reflect that

petitioner ever received any benefits under her workmen’s

compensation claim.

     On November 12, 1996, petitioner obtained a $166,013 default

judgment for personal injury damages against the person who was

pushing the shopping cart that injured petitioner in 1989.

     On or about March 14, 1997, in a bankruptcy proceeding, the

person against whom petitioner obtained the default judgment was

discharged of liability to pay the $166,013 judgment petitioner

had obtained, and petitioner never collected anything on the

judgment.   Petitioner never included any portion of the $166,013
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judgment in taxable income, and the record does not establish

that petitioner had any tax basis in the uncollected judgment.

     On their 1997 joint Federal income tax return filed with

respondent, petitioners reported as taxable $5,789 of the Social

Security benefits petitioner received in 1997, and petitioners

claimed a $11,068 casualty loss deduction relating to the above

$166,013 uncollected judgment.    Petitioners also attached to

their 1997 tax return a statement that they intended to deduct

the balance of the $154,946 uncollected judgment over the course

of the next 15 years –- $11,068 in each year -– as a loss

carryforward under section 172.

     For 2003, the year at issue herein, petitioners filed a

joint Federal income tax return, reported thereon $6,604 as the

taxable portion of the Social Security benefits petitioner

received, and claimed the $11,068 loss carryforward mentioned

above relating to petitioner’s 1996 $166,013 uncollected

judgment.

     After an audit of petitioners’ 2003 Federal income tax

return, on December 5, 2005, respondent mailed to petitioners a

notice of deficiency reflecting a $437 tax deficiency for 2003

based on a recalculation of the portion of Social Security

disability benefits petitioner received in 2003 that was taxable.
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     On March 4, 2006, petitioners timely mailed and postmarked a

petition disputing the $437 tax deficiency respondent had

determined on the ground that the entire amount petitioner

received in 2003 as Social Security disability benefits should be

treated as nontaxable workmen’s compensation benefits under

section 104(a)(1).

     On June 2, 2006, respondent filed an answer alleging an

increase to $2,498 in the tax deficiency determined against

petitioners for 2003 on the ground that the $11,068 loss

deduction petitioners claimed relating to petitioner’s

uncollected judgment was not allowable.   Based on the

disallowance of the $11,068 loss deduction and the resulting

increase in petitioners’ income, respondent also recalculated and

increased the portion of the Social Security disability benefits

petitioner received in 2003 that was taxable.

     Also in his answer, respondent asserted a $499 section

6662(a) accuracy-related penalty against petitioners for 2003.

     On July 19, 2006, respondent filed under Rule 37(c) a Motion

for Entry of Order That Undenied Allegations in Answer Be Deemed

Admitted.   Petitioners did not file a reply to respondent’s

answer or a response to respondent’s Rule 37(c) motion, and on

September 20, 2006, we granted respondent’s Rule 37(c) motion.

     On October 23, 2006, respondent filed the instant motion for

summary judgment.
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                           Discussion

Summary Judgment

     When no material fact remains at issue, we may grant summary

judgment as a matter of law.   Rule 121(b); Fla. Country Clubs,

Inc. v. Commissioner, 122 T.C. 73, 75-76 (2004), affd. on other

grounds 404 F.3d 1291 (11th Cir. 2005).   Because of the parties’

admissions and deemed admissions as to material facts, no

material fact remains at issue.


Social Security Benefits

     Generally, taxpayers who file a joint return and receive

Social Security benefits and whose modified adjusted gross income

plus half of Social Security benefits received in a year exceeds

$32,000 are to include in taxable income a portion of the Social

Security benefits received in a year.   Sec. 86(a), (b), and

(c)(1)(B).

     Generally, Social Security disability benefits are taxed in

the same manner as Social Security benefits.   Sec. 86(d)(1);

Joseph v. Commissioner, T.C. Memo. 2003-19.

     Benefits received under a workmen’s compensation statute or

other statute authorizing benefits in the nature of workmen’s

compensation may not be included in income.    See sec. 104(a)(1);

McDowell v. Commissioner, T.C. Memo. 1997-500.

     A statute providing for payment of benefits that are not

related to an injury incurred in the course of employment is not
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considered to be a statute in the nature of workmen’s

compensation.    Take v. Commissioner, 804 F.2d 553, 557 (9th Cir.

1986), affg. 82 T.C. 630 (1984), and T.C. Memo. 1985-388.

     The Social Security Act provides for disability benefits for

an injury regardless of whether the injury occurred in the course

of employment.   See 42 U.S.C. sec. 423(d)(1)(A) (2000).

     Petitioner’s Social Security disability benefits received in

2003 were provided to petitioner under the Social Security Act.

Because the Social Security Act is not a statute in the nature of

workmen’s compensation, petitioners must include in gross income

for 2003 $11,227 of the $13,208 in Social Security disability

benefits that petitioner received in 2003, as per the calculation

provided under section 86.


Section 165 Deduction

     Section 165(c) provides a deduction from income for

taxpayers who incur an uncompensated loss relating to a trade or

business, to a transaction entered into for profit, or to a

casualty resulting in an uncompensated loss of property.

     Petitioner’s $166,013 uncollected judgment involving the

shopping cart was personal in nature and had no connection with

petitioner’s trade or business or with a transaction entered into

for profit.   Petitioner may not deduct under section 165(c)(1) or

(2) any portion of petitioner’s uncollected judgment.
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     Further, the amount of a casualty loss deduction under

section 165(c)(3), which applies to property, is limited to the

lesser of the reduction in fair market value as a result of the

casualty or the property’s adjusted tax basis.     Godwin v.

Commissioner, T.C. Memo. 2003-289, affd. 132 Fed. Appx. 785 (11th

Cir. 2005); sec. 1.165-7(b)(1), Income Tax Regs.

     Generally, adjusted basis refers to the amount paid for

property increased and decreased by various adjustments such as

cost of improvements and depreciation.    Secs. 165(b), 1011(a),

1016; secs. 1.1011-1, 1-1012-1(a), Income Tax Regs.

     The above tax basis limitation set forth in the regulations

prevents petitioners herein from obtaining a casualty loss

deduction relating to petitioner’s uncollected judgment.

Petitioner did not include any portion of the $166,013

uncollected judgment in income and did not establish any tax

basis therein.   No section 165(c)(3) loss deduction is allowable

with respect thereto.

     In consolidated docket Nos. 4970-05 and 2475-04, petitioners

litigated before us for 2000 and 2001 the same issues raised

herein.   We held that petitioner’s Social Security disability

benefits are taxable and that petitioners may not deduct under

section 165(c)(1) or (2) any portion of the $166,013 uncollected

judgment.   See Green v. Commissioner, T.C. Memo. 2006-39.

Petitioners’ appeal thereof is currently pending in the U.S.

Court of Appeals for the Ninth Circuit.
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Accuracy-Related Penalty

     Under sections 6662(a) and (b)(1), a taxpayer who has an

underpayment of tax may be liable for a penalty of 20 percent of

the underpayment of tax attributable to negligence or disregard

of the Federal income tax rules or regulations.

     “[D]isregard of rules and regulations” includes careless,

reckless, or intentional disregard of rules and regulations.

Sec. 6662(c).

     Respondent bears the burden of proof in connection with the

section 6662(a) penalty.    Rule 142(a).     Respondent has met his

burden of proof.

     In light of Mr. Green’s work as a tax auditor for respondent

and in light of the relatively straightforward adjustments we

sustain herein, we sustain respondent’s imposition of the $499

accuracy-related penalty.

     For the reasons stated, we shall grant respondent’s motion

for summary judgment.

                                        An appropriate order and

                                decision will be entered for

                                respondent.
