                       120 T.C. No. 1



                UNITED STATES TAX COURT



             THOMAS D. TUKA, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 12224-01.                    Filed January 6, 2003.


     P excluded from gross income certain disability
benefits that he received under a pilot disability plan
funded by his employer, U.S. Airways, Inc. P alleges
that in prior collective bargaining negotiations, the
Airline Pilots Association and U.S. Airways pilots made
wage concessions in exchange for the pilot disability
plan. P argues that, in reality, the concessions he
and the other pilots made represent the contributions
to the pilot disability plan for purposes of sec.
104(a)(3), I.R.C.

     Held: P’s employer, U.S. Airways, funded the
pilot disability plan for purposes of sec. 104(a)(3),
I.R.C. Contributions to the plan were not includable
in P’s gross income. Accordingly, the disability
benefits are not excluded under sec. 104(a)(3), I.R.C.
                               - 2 -

     Thomas D. Tuka, pro se.

     Julia L. Wahl, for respondent.



     RUWE, Judge:   Respondent determined a deficiency of $19,565

in petitioner’s Federal income tax for 1999 and an accuracy-

related penalty under section 6662(a)1 of $3,913.    Respondent

concedes the accuracy-related penalty, and the issue for decision

is whether certain disability benefits that petitioner received

in 1999 were properly excluded from gross income under section

104(a)(3).

                         FINDINGS OF FACT

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.     At the time of filing the

petition herein, petitioner resided in Beaver Falls,

Pennsylvania.

     Petitioner was employed as an airline pilot for U.S.

Airways, Inc., from 1972 until July 1995, when he left work

because of carpal tunnel syndrome.     U.S. Airways paid petitioner

hourly wages.   The hourly rate of compensation was established in

collective bargaining negotiations between U.S. Airways and the

Airline Pilots Association (ALPA).     Petitioner’s disability



     1
      All section references are to the Internal Revenue Code in
effect for the taxable year at issue.
                               - 3 -

benefits package was also established through collective

bargaining negotiations.   ALPA negotiated with U.S. Airways for

disability benefits for its member pilots.

     As a result of petitioner’s carpal tunnel syndrome, he was

eligible for disability benefits under the pilot disability plan.

In 1999, U.S. Airways, through Reliastar Life of New York, paid

to petitioner $83,046.54 in disability benefits.   Petitioner’s

disability benefits were paid on the basis of his age, years of

service, and salary.   The disability benefits were not paid on

the basis of his medical condition.

     Reliastar issued a Form W-2, Wage and Tax Statement, on

which it reported the disability benefits that petitioner

received in 1999 as taxable income (“Wages, tips, other

compensation”).   Petitioner did not report the disability

benefits as income on the Form 1040, U.S. Individual Income Tax

Return, that he filed with respect to taxable year 1999.

     Petitioner alleges, and he introduced testimony to show,

that U.S. Airways pilots made wage concessions of approximately

$20 million in exchange for the pilot disability plan.

Petitioner’s disability benefits package under that plan did not

result in any separate deductions out of his pay, and its cost

was not incorporated in his union dues.   Instead, petitioner

alleges that the pilot disability plan was “paid for at the

negotiating table” through the wage concessions.
                                - 4 -

                               OPINION

     Petitioner argues that the disability benefits that he

received in 1999 are excluded from gross income under section

104(a)(3).    Respondent determined that those amounts are not

excluded from gross income.

     Gross income includes income from whatever source derived.

Sec. 61(a).    However, gross income does not include amounts

received through accident and health insurance for personal

injuries or sickness other than amounts received by an employee,

to the extent such amounts:    (1) Are attributable to

contributions by the employer which were not includable in the

gross income of the employee or (2) are paid by the employer.

Sec. 104(a)(3).2




     2
      Sec. 105(a) specifically includes in gross income amounts
received by an employee through accident or health insurance for
personal injuries or sickness to the extent such amounts: (1)
Are attributable to contributions by the employer which were not
includable in the gross income of the employee, or (2) are paid
by the employer. However, sec. 105(b) limits the application of
sec. 105(a) for certain amounts which are paid, directly or
indirectly, to the taxpayer to reimburse the taxpayer for
expenses incurred by him for the medical care of the taxpayer,
his spouse, and his dependents. Further, gross income does not
include disability benefits to the extent that they 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, and which are computed with
reference to the nature of the injury without regard to the
period the taxpayer is absent from work. Sec. 105(c). The
exclusions under sec. 105(b) and (c) do not apply to the facts in
the instant case and petitioner has made no argument that they
do.
                                - 5 -

     The amounts that petitioner received under the pilot

disability plan were received through accident and health

insurance for personal injuries or sickness within the meaning of

section 104(a)(3).    Trappey v. Commissioner, 34 T.C. 407 (1960);

Andrews v. Commissioner, T.C. Memo. 1992-668.      Thus, petitioner

may exclude those amounts if he paid premiums for the disability

plan or if his employer paid premiums and the premiums were

includable in his gross income.   See Miley v. Commissioner, T.C.

Memo. 2002-236.

     Petitioner suggests that, in reality, the employees of U.S.

Airways, including petitioner, paid the contributions that were

made to the pilot disability plan.      He cites the negotiations

between ALPA and U.S. Airways wherein ALPA and the U.S. Airways

pilots made wage concessions in exchange for the disability

benefits package.    Petitioner suggests that the wage concessions

the U.S. Airways employees made funded the contributions to the

pilot disability plan.   Petitioner argues that the disability

benefits that he received under that plan are excludable from

gross income under section 104(a)(3).      We disagree.

     There is no dispute in this case that any contributions to

the pilot disability plan were actually paid by U.S. Airways,

petitioner’s employer.   Consequently, any benefits received under

that plan are includable in petitioner’s income unless the

contributions were includable in petitioner’s gross income.      We
                                - 6 -

cannot accept petitioner’s argument that, in reality, the

contributions were made by U.S. Airways employees, including

petitioner, via the wage concessions.     To accept petitioner’s

position would essentially qualify any negotiated disability

package for exclusion under section 104(a)(3) since any such

package could be construed as a substitute for wages that

employees might otherwise receive.      We cannot agree that Congress

intended section 104(a)(3) to be read so broadly as to exclude

accident or health insurance benefits attributable to wage

concessions made in a negotiated bargaining process.

     Although section 104(a)(3) is not explicit on the subject,

it clearly contemplates that exemption of benefits depends on

whether contributions to an accident and health insurance plan

involve after-tax dollars.    Indeed, if an employee is to exclude

disability benefits attributable to employer contributions, those

contributions must have been includable in the employee’s gross

income.   Sec. 104(a)(3).   Petitioner asks this Court to accept

that wage concessions, which reduced the wages he might have

otherwise received, but which were not taxed, represent

contributions that he made to an accident or health insurance

plan for purposes of section 104(a)(3).     This would be contrary

to the underlying intent that Congress had in enacting that Code

section and the limitations that it imposed on exclusion therein.
                                - 7 -

     Petitioner also contends that regardless of whether U.S.

Airways in fact funded the disability plan, any contributions

that U.S. Airways made to the plan “would be constructive income

to the Petitioner, and thus includible in the Petitioner’s gross

income for each year the contributions were made.”         However, as a

general matter, the gross income of an employee does not include

employer-provided coverage under an accident or health plan.

Sec. 106(a).   Thus, we cannot agree that any contributions that

U.S. Airways made to the disability plan were properly includable

in petitioner’s gross income.

     The benefits that petitioner received in 1999 are not

excludable under section 104(a)(3).3      Accordingly, we hold that

the payment received in 1999 constitutes gross income, and we

sustain respondent’s determination of a deficiency.


                                             Decision will be entered

                                        for respondent except for the

                                        accuracy-related penalty under

                                        section 6662(a).



     3
      Petitioner also argues that the “US Air, Inc. Pilot’s
Working Agreement” must be construed in conformance with the laws
of the Commonwealth of Pennsylvania, which prohibit taxation on
disability payments because they are not considered to be the
property of the beneficiary. This case raises a question
regarding the application of sec. 104(a)(3) of the Internal
Revenue Code. Whether the Commonwealth of Pennsylvania expressly
prohibits taxation of disability payments has no relevance in
deciding the issue before us.
