                  T.C. Summary Opinion 2001-31



                     UNITED STATES TAX COURT



                 WILLIAM REYNOLD LUHR, Petitioner
         v. COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 7541-99S.                     Filed March 15, 2001.


     William Reynold Luhr, pro se.

     Anne S. Daugharty, 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 petitioner’s 1996

Federal income tax in the amount of $1,883.1   The issues for

decision are:   (1) Whether pension payments from Boilermaker-

Blacksmith National Pension Trust (pension trust) are includable

in gross income under section 105, and (2) whether Social

Security benefits are includable in gross income under section

86.

      Some of the facts were stipulated and are so found.   The

stipulation of facts and the attached exhibits are incorporated

herein.   Petitioner resided in Olympia, Washington, at the time

the petition was filed.   During the year in issue, petitioner was

married and filed a joint Federal income tax return.

      Petitioner worked as a field boilermaker for 22 years and

was a member of the Boilermakers Local 563 (union) before he was

diagnosed with ankylosing spondylitis in 1986.   As a member of

the union, petitioner paid dues and participated in the pension

trust, an employer-paid plan for disability and retirement

pensions.   Due to his illness, petitioner was no longer able to

work after 1986.   Petitioner became eligible to receive Social

Security disability benefits in 1987 and received total benefits

of $11,034 in 1996.   No portion of these benefits was disclosed

or reported in gross income by petitioner on his 1996 return.     In

1988, petitioner was also approved to receive a “disability

1
     The notice of deficiency was addressed to “William R &
Patricia M Luhr”. Patricia Luhr did not sign the petition or any
other documents relating to this case and is not a party in this
matter.
                               - 3 -


pension” from the pension trust.   In 1996, petitioner received

$6,995 from the pension trust, which was also not disclosed or

reported in gross income on his return.   Petitioner was born on

April 1, 1934, and was 62 years old during the year in issue.

     In the notice of deficiency, respondent determined that

petitioner failed to report $5,517 of taxable Social Security

benefits, and $6,995 of taxable pension and annuity income.

Pension Trust Income

     Section 61(a) provides that, except as otherwise provided by

law, gross income includes all income from whatever source

derived.   Gross income does not include amounts received through

accident or health insurance for personal injuries or sickness,

other than amounts received by an employee to the extent such

amounts are:   (1) Attributable to contributions by the employer

which were not includable in the gross income of the employee; or

(2) paid by the employer.   See sec. 104(a)(3).   The latter

amounts are includable in the gross income of the employee

pursuant to section 105(a).

     In Trappey v. Commissioner, 34 T.C. 407, 408 (1960), we held
that disability income received through accident or health

insurance for personal injuries or sickness is within the meaning

of section 104(a)(3).   Hence, the provisions in sections 104 and

105 dealing with amounts received through health insurance are

used to resolve whether petitioner’s disability benefits are

includable in gross income.
                                - 4 -


     Petitioner concedes that the disability payments are

attributable to insurance premiums which were paid by employers

who contracted for his services through the union and which were

not included in his gross income.   However, petitioner contends

that the 1996 payments from the pension trust were disability

payments pursuant to section 105(c), and, therefore, excludable

from gross income.

     Section 105(c) provides as follows:

          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 * * *, 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 petitioner must satisfy both paragraphs (1) and (2)

of section 105(c).   Section 105(c)(2) itself has two parts 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 absent from work.   With respect to the first part of

section 105(c)(2), the Court of Appeals for the Fourth Circuit

stated in Rosen v. United States, 829 F.2d 506, 509 (4th Cir.

1987):

          A review of the cases indicates that for payments
     to be excludible from income under section 105(c), the
     instrument or agreement under which the amounts are
                                - 5 -


     paid must itself provide specificity as to the
     permanent loss or injury suffered and the corresponding
     amount of payments to be provided. * * * exclusion is
     permitted only under plans which vary benefits to
     reflect the particular loss of bodily function. * * *

Accord Beisler v. Commissioner, 814 F.2d 1304, 1307 (9th Cir.

1987), affg. T.C. Memo. 1985-25; Hines v. Commissioner, 72 T.C.

715, 720 (1979).    Petitioner relies on a letter from the pension

trust manager stating that petitioner’s receipt of the monthly

pension is solely based on the amount of petitioner’s Social

Security disability benefits.    The letter also informs petitioner

that upon attaining age 65, “this Disability Pension was

converted to an Age Pension.”    It is well settled that we “are

fully justified in examining such contracts or relationships to

determine whether they are truthfully described by the labels

which the parties have attached to them.”    Graybar Elec. Co. v.

Commissioner, 29 T.C. 818 (1958), affd. per curiam 267 F.2d 403

(2d Cir. 1959).    The labeling of the pension trust as

“disability” without evidence confirming that the requirements of

section 105(c) have been met is not binding on us.    At trial,

petitioner did not produce the written pension trust agreement

and has been unable to establish that the pension trust payments

he received from the union comport with the requirements of

section 105(c).    Indeed, petitioner concedes that the union

computed his pension trust benefits based on the number of hours

performed and years of credited service rather than with regard

to any injury as required by section 105(c)(2).
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     Petitioner believes that the pension trust payments may be

excludable from gross income because of information he received

in a letter from the pension trust stating:

     since you are receiving these benefits due to a
     disability and are under the retirement age of sixty-
     five, these benefits may be excludable from gross
     income to the extent that such amounts are allowed by
     the Internal Revenue Service. At age sixty-five, the
     benefits will be taxable as ordinary income.

However, the language in the letter correlates to section

105(d).2    During the years section 105(d) was in effect, payments

made under wage continuation plans could be excluded from gross

income under certain conditions.    Section 105(d), however, 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.

     Finally, petitioner cites two cases, Winter v. Commissioner,
303 F.2d 150 (3d Cir. 1962), affg. 36 T.C. 14 (1961), and Jackson

v. Commissioner, 28 T.C. 36 (1957), in support of his argument

that the pension trust amounts are excludable from gross income.

After reviewing the    cases, we conclude that each is clearly

distinguishable.    Winter v. Commissioner, supra, interprets


2
     SEC. 105(d) Certain Disability Payments.–
          (1) In General.--In the case of a taxpayer who–
               (A) has not attained age 65 before the close of
     the taxable year, and
               (B) retired on disability and, when he retired,
     was permanently and totally disabled, gross income does not
     include amounts referred to in subsection (a) if such
     amounts constitute wages or payments in lieu of wages for a
     period during which the employee is absent from work on
     account of permanent and total disability.
                              - 7 -


section 105(d) which is no longer in effect, as noted above, and,

therefore, is irrelevant to our analysis.   In Jackson v.
Commissioner, supra, the Court examined a written retirement and

death benefit plan and held, based upon the Supreme Court

decision in Haynes v. Commissioner, 353 U.S. 81 (1957), that the

plan qualified as “health insurance” pursuant to section 22(b)(5)

of the Internal Revenue Code of 1939 (section 22(b)(5)).3   We

note that section 22(b)(5) is the precursor to section 104.

Similarly to section 22(b)(5), section 104(a)(3) excludes from

gross income “amounts received through accident or health

insurance * * * for personal injuries or sickness”.   A notable

difference between the two sections, however, is that section

104(a)(3) qualifies the exclusion by the following limitation:

          (other than amounts received by an employee,
          to the extent such amounts (A) are
          attributable to contributions by the employer
          which were not includible in the gross income
          of the employee, or (B) are paid by the
          employer);

The opinion in Jackson v. Commissioner, supra, does not apply the

current statute and, therefore, is distinguishable from the

present case.

     On the basis of the record, we find that the disability plan

payments petitioner received from the union are not excludable



3
     Section 22(b)(5) of the Internal Revenue Code of 1939,
states that gross income shall not include “amounts received
through accident or health insurance or under workmen’s
compensation acts, as compensation for personal injuries or
sickness...”.
                                 - 8 -


from gross income pursuant to section 105(c)(2).     Accordingly, we

need not decide whether they satisfy section 105(c)(1).

Respondent is sustained on this issue.

Social Security Disability Benefits

     Section 86(a) provides that if the sum of the modified

adjusted gross income of a taxpayer plus one-half of the Social

Security benefits received exceeds the base amount, then the

taxpayer’s 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 of the sum of (a) modified adjusted gross income, plus

(b) one-half of the Social Security benefits received over the

base amount.   The base amount for taxpayers filing a joint return

in 1996 is $32,000.   See sec. 86(c)(1)(B).   Petitioner reported

the following income on his 1996 joint Federal income tax return:

          Wages                            $27,657
          Taxable interest                   1,139
          Rental real estate, etc.           2,600
          Total                            $31,396

For 1996, petitioner’s modified adjusted gross income equals his

adjusted gross income of $31,396 plus the unreported pension

benefits of $6,995.   See sec. 86(b)(2).   Because petitioner’s

modified adjusted gross income plus one-half of the Social

Security benefits received for the year is more than the base

amount of section 86(c)(1)(B), petitioner’s gross income includes
                              - 9 -


an amount of the Social Security benefits received, as provided

by section 86(a).4

     Reviewed and adopted as the report of the Small Tax Case

Division.

                                           Decision will be entered
                                      for respondent.




4
     One-half of the Social Security benefits received ($11,034)
is $5,517. The excess of the sum of the modified adjusted gross
income ($38,391), plus one-half of the Social Security benefits
received ($5,517) over the base amount is $11,908 ($38,391 +
5,517 - 32,000), one-half of which is $5,954. Accordingly,
petitioner must include the lesser of the two amounts, or $5,517.
