                   T.C. Summary Opinion 2007-110



                      UNITED STATES TAX COURT



         MILLARD D. AND MARJORIE C. THOMAS, Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 22366-04S, 11333-05S.    Filed June 28, 2007.



     Millard D. and Marjorie C. Thomas, pro se.

     Daniel N. Price, for respondent.



     WHERRY, Judge:   These consolidated cases arise from

petitions for judicial review of notices of deficiency.     They

were heard pursuant to the provisions of section 7463 of the

Internal Revenue Code in effect when the petitions were filed.1



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

Pursuant to section 7463(b), the decisions to be entered are not

reviewable by any other court, and this opinion shall not be

treated as precedent for any other case.   The issue for decision

is whether disability pension benefits are excludable from

petitioners’ gross income pursuant to section 105(c) for taxable

years 2002 and 2003.

                            Background

     Some of the facts have been stipulated by the parties.    The

stipulations, with accompanying exhibits, are incorporated herein

by this reference.   At the time the petition for docket No.

22366-04S was filed, petitioners resided in Santa Fe, New Mexico.

By the time the petition for docket No. 11333-05S was filed,

petitioners resided in El Paso, Texas.

     Petitioner, Millard Thomas (Mr. Thomas), was employed by

Stone Container Corp. (Stone Container) and its predecessors from

1970 to 1995.   In 1995, Mr. Thomas applied for disability pension

benefits from Pace Industry Union-Management Pension Fund

(PIUMPF).2   These benefits were granted in 1996.   Mr. Thomas’s

disability consists of lower back pain caused by degenerative

disk disease, and leg pain caused by chronic varicose veins.       His

leg disability was apparently the result of a work-related injury


     2
      Some exhibits refer to the “Paper Industry Union-Management
Pension Fund” rather than to “Pace”. “Pace” is an acronym for
“Paper, Allied Industries, Chemical and Energy Workers’ Union
International,” and the two titles apparently refer to one and
the same pension plan or pension fund.
                              - 3 -

that became a chronic condition.   Photographs provided by

petitioners confirm that Mr. Thomas’s injured leg is severely

disfigured.

     Pace Industry Union-Management Pension Plan (PIUMPP),

Article IV, Section 11, ELIGIBILITY FOR DISABILITY PENSION,

provides:

     (a) Eligibility. A Participant shall be entitled to
     retire on a Disability Pension if he meets all of the
     following conditions:

     (i) He becomes totally and permanently disabled as
     defined in Section (b) below while working in Covered
     Employment,[3] and

     (ii) For Program A, B, and C Covered Employees, he has
     accumulated at least 10 years of Pension Credit with at
     least 2 quarters of Future Service Credit at the time
     the total and permanent disability commences.

     (iii) For Program D, E, and F Covered Employees, he has
     accumulated at least 5 years of Pension Credit with at
     least 2 quarters of Future Service Credit at the time
     the total and permanent disability commences.

Mr. Thomas was a Program A Covered Employee.   PIUMPP Article IV,

Section 12, AMOUNT AND COMMENCEMENT OF DISABILITY BENEFIT,

provides:


     3
      PIUMPP sec. (b) provides in pertinent part:

     Definition Of Total and Permanent Disability. A
     Participant shall be deemed totally and permanently
     disabled if, on the basis of medical evidence
     satisfactory to the Trustees, he is found to be totally
     and permanently unable, as a result of bodily injury or
     disease, to perform work in a position within the
     collective bargaining unit of the Employer with which
     he was last employed and to which he is contractually
     entitled. * * *
                                 - 4 -

             (a) Amount. The monthly amount of the Disability
        Pension shall be the amount of Regular Pension to which
        the Participant would be entitled if he had attained
        his Normal Retirement Age at the time his Disability
        Pensions starts, based on -

          (i) the number of full and fractional years of
     Pension Credit accrued by him on the last day for which
     the Employer was obligated to make contributions to the
     Fund on behalf of such Participant, and

          (ii) the Benefit Level in effect on the last day
     for which the Employer was obligated to make
     contributions to the Fund on behalf of such
     Participant.[4]

     A document entitled PIUMPF - CALCULATIONS, dated May 16,

1996, provided that Mr. Thomas was almost 52 years old when he

retired, and that he worked for Stone Container and its

predecessors for 25.75 years.     The document shows an “Age

Reduction %” of “60.0% on 52 Years 0 Months”.     According to the

document, Mr. Thomas’s “Benefit Level” was “$483 under Plan Type

‘A’”.     The document estimates Mr. Thomas’s disability pension

benefits to total $498 per month.




     4
      The PIUMPF Summary Plan Description, Section X, further
provides under the heading FINANCIAL INFORMATION that “The
contributions to the Plan are made by the employers in accordance
with their collective bargaining agreements with the PACE
International Union, AFL-CIO, and other unions, and are reflected
in the Fund’s Standard Form of Participation Agreements.” The
record does not reflect that Mr. Thomas paid premiums for the
disability pension plan or that premiums paid by Stone Container
were includable in Mr. Thomas’s gross income. Accordingly,
Mr. Thomas’s disability pension benefits are not excludable from
gross income pursuant to sec. 72(b) or 104(a)(3). See sec.
72(f); sec. 1.72-15(c)(2), Income Tax Regs.
                                 - 5 -

     Mr. Thomas’s Notice of Pension Award, dated May 22, 1996,

provided that Mr. Thomas was entitled to a monthly benefit level

of $483, and was awarded a monthly disability pension of $498,

retroactive to March 1, 1996, which was the “Effective Date”.

     Petitioners have never included Mr. Thomas’s disability

pension in their gross income.    In 1999, respondent examined Mr.

Thomas’s Federal income tax return and accepted his position that

his disability pension benefits were nontaxable.5   In both 2002

and 2003, Mr. Thomas received $5,976 in disability pension

benefits, which respondent now contends are includable in

petitioners’ gross income.




     5
      In Megibow v. Commissioner, T.C. Memo. 2004-41, affd. 161
Fed. Appx. 98 (2d Cir. 2005), this Court observed:

          From a legal standpoint, income taxes are levied
     on an annual basis, such that each year represents a
     new liability and a separate cause of action.
     Commissioner v. Sunnen, 333 U.S. 591, 598-600 (1948);
     Fla. Peach Corp. v. Commissioner, 90 T.C. [678] 682
     [(1988)]. Given this principle, collateral estoppel
     would not operate to establish entitlement to
     deductions in one year based merely on an allowance of
     similar deductions in a different year or years. See
     Barmes v. Commissioner, T.C. Memo. 2001-155 (rejecting
     attempts to apply collateral estoppel to depreciation
     deductions based on a prior litigated tax year), affd.
     89 AFTR 2d 2002-2249, 2002-1 USTC par. 50,312 (7th Cir.
     2002); see also Adolph Coors Co. v. Commissioner, 519
     F.2d 1280, 1283 (10th Cir. 1975) (rejecting an attempt
     to apply collateral estoppel even though the exact
     issue was raised in a prior Tax Court proceeding but,
     because the Commissioner abandoned the issue during the
     litigation, no judicial determination or findings were
     made), affg. 60 T.C. 368 (1973).
                                - 6 -

     Respondent issued a notice of deficiency on November 8,

2004, for the taxable year 2002, and on May 23, 2005, for the

taxable year 2003, showing deficiencies of $851 and $893,

respectively.    In response to each notice of deficiency,

petitioners filed a petition with this Court in a timely manner.

These cases were consolidated for trial and briefing, and a trial

was held on February 7, 2006, in El Paso, Texas.

                             Discussion

     As a general rule, the Commissioner’s determination of a

taxpayer’s liability in the notice of deficiency is presumed

correct and the taxpayer bears the burden of proving that the

determination is improper.    See Rule 142(a); Welch v. Helvering,

290 U.S. 111, 115 (1933).    However, pursuant to section

7491(a)(1), the burden of proof on factual issues that affect the

taxpayer’s tax liability may be shifted to the Commissioner where

the “taxpayer introduces credible evidence with respect to * * *

such issue”.    The burden will shift only if the taxpayer has,

inter alia, complied with substantiation requirements pursuant to

the Internal Revenue Code and “cooperated with reasonable

requests by the Secretary for witnesses, information, documents,

meetings, and interviews”.    Sec. 7491(a)(2).   Here, the parties

agree on the facts.    The sole issue for decision is a legal

issue, and, therefore, section 7491 does not affect the result in

these cases.
                               - 7 -

     Section 61(a) defines gross income as “all income from

whatever source derived, including * * * (11) Pensions”, unless

otherwise provided.   Section 105(a) provides that amounts

received by an employee through accident or health insurance for

personal injuries or sickness shall be included in gross income

to the extent that such amounts are (1) attributable to employer

contributions that were not includable in the employee’s gross

income, or (2) were paid by the employer.   Section 105(c)

provides an exception to the general rule in section 105(a):

     Gross income does not include amounts referred to in
     subsection (a) to the extent such amounts --

          (1) constitute payment for the permanent loss or
     loss of use of a member or function of the body, or the
     permanent disfigurement, of the taxpayer, his spouse,
     or a dependent (as defined in section 152), and

          (2) are computed with reference to the nature of
     the injury without regard to the period the employee is
     absent from work.

In order to qualify for the section 105(c) exception, the

payments to Mr. Thomas must satisfy both of these requirements.

The Court finds that the payments to Mr. Thomas fail section

105(c)(2); therefore, the Court need not, and does not, decide

whether the payments to Mr. Thomas satisfy section 105(c)(1).

     Section 105(c)(2) itself has two requirements that must be

satisfied:   (1) The payments to the taxpayer must be computed

with reference to the nature of the injury; and (2) the payments

must be computed without regard to the period the taxpayer is
                                 - 8 -

absent from work.   See Hines v. Commissioner, 72 T.C. 715, 720

(1979).   “Payments from a disability plan do not qualify for the

section 105(c)(2) exclusion if the payments are the same

regardless of the nature and severity of the particular injuries

causing the disability.”     Hayden v. Commissioner, T.C. Memo.

2003-184 (citing Hines v. Commissioner, supra), affd. 127 Fed.

Appx. 975 (9th Cir. 2005).    The Court must conclude that the

payments to Mr. Thomas fail the first requirement of section

105(c)(2) because Mr. Thomas’s disability pension benefits were

calculated based on his age and years of employment with Stone

Container, and were unaffected by the nature and severity of his

disability.

     PIUMPP disability pension benefits are available only to

employees that meet a minimum term of employment. The PIUMPP

clearly provides that the amount of disability pension benefits

an employee is entitled to receive is based on the employee’s

years of employment.   Mr. Thomas’s Notice of Pension Award, and

calculations of his benefits, show that his $498 monthly payments

were based on his age at the time of his disability and his 25.75

years of employment.   Although Mr. Thomas’s disability triggered

his entitlement to receive disability pension benefits, the

amount of his monthly benefits was determined by his age and

duration of employment, not by the nature and severity of his

disability.
                                - 9 -

       The evidence at trial clearly shows that petitioners have

admirably worked very hard, under difficult circumstances, to

support themselves and their family and to pay their taxes on

limited income due to Mr. Thomas’s disability.    However, given

the clear language of the applicable statutes, the Court

concludes that Mr. Thomas’s disability pension benefits are

taxable.    Accordingly, the Court sustains the deficiencies

determined by respondent for the 2002 and 2003 taxable years.

       In their brief, petitioners argued that if they were

ultimately found liable for the deficiencies, then interest

should be abated because respondent previously agreed with them,

at the time of the 1999 audit, that Mr. Thomas’s disability

pension benefits were nontaxable.    Pursuant to section

6404(e)(1), the Commissioner may abate part or all of an

assessment of interest on any deficiency or payment of income

tax.    Abatement may be granted to the extent that any tax

deficiency or delay in payment is attributable to unreasonable

erroneous or dilatory performance of a ministerial or managerial

act by an officer or employee of the IRS acting in his or her

official capacity.

       This Court lacks jurisdiction over petitioners’ abatement

request.    Generally, a taxpayer must first file with the

Commissioner Form 843, Claim for Refund and Request for

Abatement.    See sec. 301.6404-1(c), Proced. & Admin. Regs.   If
                             - 10 -

the taxpayer’s request for abatement of interest is denied, then

the taxpayer may petition this Court to review the Secretary’s

exercise of his discretion, whether or not to abate interest.

See sec. 6404(h).

     The Court has considered all of petitioners’ contentions,

arguments, requests, and statements.   To the extent not discussed

herein, we conclude that they are meritless, moot, or irrelevant.

     To reflect the foregoing,



                                         Decisions will be entered

                                   for respondent.
