                  T.C. Summary Opinion 2002-144



                     UNITED STATES TAX COURT



                 MONA L. PURCELL, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 11613-01S.              Filed November 7, 2002.


     Mona L. Purcell, pro se.

     Marc L. Caine and Maureen T. O'Brien, for respondent.




     DEAN, 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.    Unless otherwise

indicated, subsequent section references are to the Internal

Revenue Code in effect for the year in issue.    The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.
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     Respondent determined a deficiency in petitioner's Federal

income tax for 1999 of $3,780 and an accuracy-related penalty

under section 6662(a) of $756.    The issues for decision are:

(1) Whether any portion of the Social Security benefits

petitioner received during 1999 is includable in her gross

income; and (2) whether petitioner is liable for a section

6662(a) accuracy-related penalty as determined by respondent.

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

The stipulation of facts and the accompanying exhibits are

incorporated herein by reference.    At the time the petition was

filed, petitioner resided in Natick, Massachusetts.

     Petitioner reported wages of $54,726 for 1999.    Respondent

issued a notice of deficiency determining that petitioner failed

to report Social Security benefits received in 1999.    The Social

Security Administration (SSA) informed the Commissioner that it

had distributed $15,955 in benefits to petitioner in 1999.

     The SSA has informed petitioner that she has received a

total overpayment of $36,982.30 in Social Security benefits.

This amount is presently being disputed by petitioner.    She does

not object to repaying the benefits if the SSA determines that

she received an overpayment or paying the taxes if there is

determined not to be an overpayment.     Petitioner argues, however,

that she should not have to pay both.
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     Section 61(a) provides that, except as otherwise provided by

law, gross income includes all income from whatever source

derived.    Section 86(a)(1) generally requires the inclusion of

Social Security benefits in gross income.     Section 86

specifically provides the taxpayer with a formula to determine

what percentage of her Social Security benefits are includable in

gross income.    Because petitioner had modified adjusted-gross

income plus one-half of the Social Security benefits received in

excess of $34,000, section 86(a)(2) controls the determination of

the amount of her Social Security benefits that are includable in

gross income.    Section 86(a)(2)(B) applies to this case.   Section

86(a)(2)(B) provides that the amount of Social Security benefits

included in gross income here is "85 percent of the social

security benefits received during the taxable year."

     Social Security benefits are included in the recipient's

gross income in the taxable year in which the benefits are

received.    Sec. 86(a)(1).   Petitioner admits receiving Social

Security benefits in 1999.     If petitioner is required to repay

the Social Security benefits, she may be entitled to a deduction

in the year of repayment.     N. Am. Oil Consol. Co. v. Burnett, 286

U.S. 417, 424 (1932).    If the deduction fails to make petitioner

whole because the applicable tax rate was higher in the year of

recognition than it was in the year of return, section 1341 may

apply.   See United States v. Skelly Oil Co., 394 U.S. 678, 681
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(1969).    Section 1341 provides relief to a taxpayer who has

received income under the claim of right doctrine and applies

only if the amount of repayment exceeds $3,000 in the taxable

year.   Sec. 1341(a)(3).   Additionally, section 86(d)(2)(A) allows

a taxpayer to reduce the amount of Social Security benefits

includable in income, if, during the same year, the taxpayer was

required to make repayments on Social Security benefits

previously received.

     While petitioner's situation is not an enviable one, this

Court is bound by the language of the Code.     Because petitioner

received her Social Security benefits in 1999, she was obligated

to report them on her 1999 Federal income tax return.     The Court

holds, therefore, that respondent's determination that petitioner

failed to report $13,561.75 as income on her 1999 tax return is

correct.

     Respondent also determined that a section 6662 accuracy-

related penalty is due with respect to petitioner's tax return

for 1999.

     Section 6662 imposes a penalty equal to 20 percent of the

portion of the underpayment attributable to negligence or

disregard of rules or regulations.      See sec. 6662(a) and (b)(1).

Negligence is defined as any failure to make a reasonable attempt

to comply with the provisions of the Internal Revenue Code, and
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the term "disregard" includes any careless, reckless, or

intentional disregard.    Sec. 6662(c).

     The accuracy-related penalty will not apply if petitioner

demonstrates that there was reasonable cause for the underpayment

and that she acted in good faith with respect to the

underpayment.    See sec. 6664(c).   Whether a taxpayer acted with

reasonable cause and good faith depends on the pertinent facts

and circumstances.    See McCallson v. Commissioner, T.C. Memo.

1993-528; sec. 1.6664-4(b)(1), Income Tax Regs.

     Neither petitioner nor respondent argued or produced any

evidence indicating that petitioner had knowledge of the

overpayments prior to filing her 1999 Federal tax return.    During

trial the Court asked petitioner why she did not report the

Social Security benefits.    Petitioner's response provided no

legally significant reason; she claimed that she did not know she

needed to report Social Security benefits as income and that she

was "naive".    She concluded by stating that "I'm definitely at

fault for that."

     The Court finds that petitioner failed to make a reasonable

attempt to determine whether she should report any portion of the

Social Security benefits she received in 1999.    Further,

petitioner failed to produce any evidence to show that she acted

with reasonable cause and good faith for the year at issue.      The
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Court sustains respondent's determination that petitioner is

liable for the accuracy-related penalty for 1999.

     Reviewed and adopted as the report of the Small Tax Case

Division.

                                      Decision will be entered

                              for respondent.
