                          T.C. Memo. 1996-209



                        UNITED STATES TAX COURT



            ROGER G. AND LILIANNE J. G. MAKI, Petitioners v.
              COMMISSIONER OF INTERNAL REVENUE, Respondent



        Docket No. 3797-95.                     Filed April 30, 1996.



        Roger G. and Lilianne J. G. Maki, pro sese.

        Keith G. Medleau, for respondent.



                           MEMORANDUM OPINION


        DINAN, Special Trial Judge:   This case was heard pursuant

to the provisions of section 7443A(b)(3) and Rules 180, 181, and

182.1

        1
          Unless otherwise indicated, all section references are
to the Internal Revenue Code in effect for the taxable year in
issue. All Rule references are to the Tax Court Rules of
Practice and Procedure.
                               - 2 -

     Respondent determined a deficiency in petitioners' 1991

Federal income tax in the amount of $882 and an accuracy-related

penalty pursuant to section 6662(a) in the amount of $176.

     The issues for decision are:   (1) Whether $3,150 of Social

Security disability benefits received by petitioners during 1991

constitutes gross income; and (2) whether petitioners are liable

for the accuracy-related penalty pursuant to section 6662(a).

     Some of the facts have been stipulated and are so found.

The stipulations of fact and attached exhibits are incorporated

herein by this reference.   Petitioners resided in Des Moines,

Washington, on the date the petition was filed in this case.

Hereinafter, references to petitioner in the singular are to

petitioner Roger G. Maki.

     In 1991, petitioner received Social Security disability

benefits in the amount of $6,299.   On their 1991 Federal income

tax return, petitioners identified this amount as "Social

Security benefits" with an added notation "Disability payments

see enclosure" on line 21a of the return; however, the amount was

not entered as taxable income on the adjacent line 21b of

petitioners' income tax return.   Petitioners' adjusted gross

income for 1991, without the inclusion of the Social Security

disability benefits, was $53,321.

     Petitioner contends that his Social Security disability

benefits are not taxable.   Petitioner's position is based on Form
                               - 3 -

886-A,2 involving an audit of petitioners' 1987 tax year.    Form

886-A, was a handwritten statement addressed to petitioners and

stated the following:

          The enclosed information indicates that the income
     is considered taxable Social Security Benefits and not
     disability payments that are non-taxable. You will
     receive a refund for the amount you overpaid if you owe
     no other taxes.

The Form 886-A was the enclosure referenced on petitioners' 1991

Federal income tax return.   Respondent contends that Social

Security disability benefits are taxed pursuant to section 86 and

that one-half of the amount received is taxable to petitioner

during the year in issue.

     The first issue for decision is whether petitioner's Social

Security disability payments are taxable pursuant to section 86.

We begin by noting that petitioners have the burden of proving

that respondent's determination is in error.   Rule 142(a); Welch

v. Helvering, 290 U.S. 111 (1933).

     Before 1984, certain payments made in lieu of wages to an

employee who was retired by reason of permanent and total

disability were excludable from the employee's gross income under

section 105(d).3   However, the Social Security Act Amendments of

1983 repealed the limited exclusion of disability payments


     2
          Agreement as to Final Determination of Tax Liability.
     3
          Sec. 105(d) 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.
                               - 4 -

provided by section 105(d), effective with respect to taxable

years beginning after 1983.4   Therefore, since 1984 Social

Security disability benefits have been treated in the same manner

as other Social Security benefits.     See sec. 86(d)(1).5   These

benefits are subject to tax under the provisions of section 86.

See Ernzen v. United States, 875 F.2d 228 (9th Cir. 1989);

Wallers v. United States, 847 F.2d 1279 (7th Cir. 1988); Gibson

v. Commissioner, T.C. Memo. 1996-140; Bradley v. Commissioner,

T.C. Memo. 1991-578.

     Section 61(a) provides that gross income includes all income

from whatever source derived, unless excludable by a specific

provision of the Code.   Moreover, section 86(a) for the year in

issue, provides that gross income includes Social Security

benefits in the amount equal to the lesser of : (1) one-half of

the Social Security benefits received during the year, or (2)

one-half of the excess over certain base amounts.     The base

amount for the year in issue for a joint return is $32,000.      Sec.

86(c)(2).




     4
          Under sec. 22, an individual who is retired on account
of permanent and total disability is allowed a credit equal to 15
percent of the individual's "section 22 amount" for the taxable
year. Based on petitioners' level of income, they do not qualify
for the sec. 22 credit for the year in issue.

     5
          Sec. 86(d)(1) defines "Social Security benefit" as
amounts received under title 11 of the Social Security Act which
includes Social Security disability benefits.
                               - 5 -

     Therefore, we hold that one-half of petitioner's Social

Security disability benefits, in the amount of $3,150 is taxable

for the year in issue.   Sec. 86(a).   Petitioners failed to

present any evidence contrary to respondent's position.    Rule

142(a).   Accordingly, respondent is sustained on this issue.

     The final issue for decision is whether petitioners are

liable for the section 6662(a) accuracy-related penalty.    Section

6662(a) imposes a 20-percent penalty on the portion of an

underpayment attributable to any one of various factors, one of

which is negligence.   Respondent determined that petitioners are

liable for the accuracy-related penalty imposed by section

6662(a), and that the entire underpayment of tax was due to

negligence.   "Negligence" includes a failure to make a reasonable

attempt to comply with the provisions of the Internal Revenue

laws or to exercise ordinary and reasonable care in the

preparation of a tax return.   Sec. 6662(c); sec. 1.6662-3(b)(1),

Income Tax Regs.   "Disregard" includes any careless, reckless, or

intentional disregard of rules or regulations.    Sec. 6662(c);

sec. 1.6662-3(b)(2), Income Tax Regs.

     However, section 6664(c)(1) provides that the penalty under

section 6662(a) shall not apply to any portion of an

underpayment, if it is shown that there was reasonable cause for

the taxpayer's position with respect to that portion and that the

taxpayer acted in good faith with respect to that portion.     Sec.

6664(c)(1).   The determination of whether a taxpayer acted with
                                 - 6 -

reasonable cause and in good faith within the meaning of section

6664(c)(1) is made on a case-by-case basis, taking into account

all the pertinent facts and circumstances.   Sec. 1.6664-4(b)(1),

Income Tax Regs.   The most important factor is the extent of the

taxpayers' effort to assess their proper tax liability for the

year.   Id.

     Petitioners prepared their 1991 Federal income tax return.

Although we found petitioner to be a credible witness, the record

fails to establish that petitioners acted with reasonable cause

and in good faith in assessing whether petitioner's Social

Security disability benefits were taxable.   Social Security

disability payments have been subject to tax since 1984.   The

record shows that respondent has challenged petitioner's failure

to include his Social Security disability benefits as taxable

income in the past.   Other than their reliance on the Form 886-A,

petitioners offered no proof that they made good faith efforts to

assess their proper tax liability.

     Based on this record, we conclude that petitioners are

liable for the section 6662 accuracy-related penalty.

     To reflect the foregoing,



                                         Decision will be entered

                                         for respondent.
