                       T.C. Memo. 2001-120



                     UNITED STATES TAX COURT



          WILL L. AND RACHEL A. THOMAS, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 17397-99.                      Filed May 21, 2001.


     Rachel A. Thomas, pro se.

     Linda M. Davis, for respondent.



                       MEMORANDUM OPINION


     COUVILLION, Special Trial Judge: Respondent determined a

deficiency of $1,432 in petitioners' 1997 Federal income tax.1

     The sole issue for decision is whether Social Security

disability benefits received by petitioner Will L. Thomas

(petitioner) during 1997 are includable in gross income under


     1
          Unless otherwise indicated, all section references are
to the Internal Revenue Code in effect for the year at issue.
                                - 2 -


section 86(a), or whether, as petitioners contend, such benefits

are excludable from gross income under sections 104(a)(3) and

105(3).2   If the Court holds that such benefits are includable in

income, petitioners contend that section 86 violates the Equal

Protection Clause of the U.S. Constitution.

     Some of the facts were stipulated, and those facts, with the

annexed exhibits, are so found and are incorporated herein by

reference.    Petitioners' legal residence at the time the petition

was filed was Madison, Tennessee.

     Because of a diabetic condition, petitioner was decreed

totally disabled by the Social Security Administration in March

1987.    Petitioner has been receiving disability Social Security

benefits since that date.   His condition necessitated that he

leave his employment as an assistant terminal manager for a

freight trucking company.   Petitioner Rachel A. Thomas (Mrs.

Thomas) was employed in the accounting department of a

corporation during 1997.

     For the year 1997, petitioner received $14,097 in disability

Social Security benefits.   He also received $16,740 in benefits

     2
          Petitioners' reference to sec. 105(3) is in error
because there is no such subsection. The Court believes, based
on the arguments raised in their trial memorandum, that
petitioners' reference may be to section 105(e) relating to
certain types of accident or health plans or employee sickness
and disability funds that are treated as accident or health
insurance plans within the meaning of sec. 104. The Court,
therefore, will address petitioners' contention under sec.
105(e).
                               - 3 -


from the Hartford Life Insurance Co.    These benefits were from a

health and accident plan provided by petitioner's former

employer.

     On their Federal income tax return for 1997, petitioners

included as income the wages earned by Mrs. Thomas, the Hartford

Insurance Co. benefits, taxable interest income, and unemployment

compensation benefits.   On lines 20a and 20b of the Form 1040,

U.S. Individual Income Tax Return, for Social Security benefits,

no amounts were entered as income.     However, the following line

21, Other Income, included a typed notation: "TP claims exemption

on Disa", and the amount of $1 was entered as income.3

     In the notice of deficiency, respondent determined that the

disability Social Security benefits were subject to tax under

section 86 and determined that $8,876 of those benefits was

includable in gross income.   No other adjustments were made by

respondent to petitioners' 1997 return.

     Petitioners contend that the disability Social Security

benefits are a health and accident insurance benefit under




     3
          Although petitioners did not address this entry at
trial, the Court surmises that the term "Disa" on line 21 of the
return was an intended synonym for disability income Social
Security benefits. Since petitioners contend that such benefits
are excludable from income, no explanation was advanced as to why
petitioners considered $1 of such benefits includable in gross
income as reported on line 21 of the return.
                                   - 4 -


sections 104(a)(3) and 105(e).4      As such, the benefits are

excludable from gross income.       The Court disagrees.

     Prior to 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).      However, the Social Security Act Amendments of

1983, Pub. L. 98-21, sec. 122(b), 97 Stat. 85, repealed the

limited exclusion of disability payments provided by section

105(d), effective with respect to taxable years beginning after

1983.       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 at

issue, provides that gross income includes Social Security



        4
               See supra note 3.
        5
          Sec. 86(d)(1) defines "Social Security benefit" as
amounts received under title II of the Social Security Act that
include Social Security disability benefits.
                                 - 5 -


benefits in an amount equal to a prescribed formula therein

provided.   Petitioners have not challenged the computation by

respondent under this formula.

     The Court rejects petitioners' contention that disability

Social Security benefits constitute accident or health insurance

under section 104(a)(3).   The repeal by Congress of former

section 105(d), which specifically provided for the exclusion

from income of certain disability benefits and the enactment of

section 86, with the section 86(d)(1)(A) provision that the term

"Social Security benefits" includes benefits received under title

II of the Social Security Act (which includes disability Social

Security benefits), indicates quite clearly to the Court that

Congress did not intend that disability Social Security benefits

could be construed as an accident or health plan under section

104(a)(3), or that disability Social Security benefits are

otherwise excludable from gross income.    The Court, therefore,

rejects petitioners' contention on this issue.

     Petitioners' final argument is leveled at the

constitutionality of section 86.    Petitioners argue that, if

employees of a State or territory of the United States, including

the District of Columbia, are entitled to exclude from income

sickness or disability benefits under accident and health plans
                               - 6 -


as provided under section 105(e),6 "then anyone receiving Social

Security disability payments prior to retirement age of 65 from

the United States should also be excluded", and that "our

Internal Revenue Code should apply equally to all citizens of the

United States and if not, it is a violation of the Equal

Protection Clause of the United States Constitution."

     This Court noted in Drucker v. Commissioner, 77 T.C. 867,

872 (1981), affd. in part, revd. in part 697 F.2d 46 (2d Cir.

1982), that "No scheme of taxation, whether the tax is imposed on

property, income, or purchases of goods and services, has yet

been devised which is free of all discriminatory impact."

Section 86 has been held not to suffer any constitutional

infirmities.   See Clark v. Commissioner, T.C. Memo. 1998-280,

affd. without published opinion 187 F.3d 641 (8th Cir. 1999);

Roberts v. Commissioner, T.C. Memo. 1998-172, affd. without

published opinion 182 F.3d 927 (9th Cir. 1999).     Petitioners'

constitutional claim, therefore, is denied.



                                            Decision will be entered

                                       for respondent.




     6
          However, such benefits generally are taxable if
received from an employer-financed plan.
