                    T.C. Memo. 2009-207



                  UNITED STATES TAX COURT



       PEGGY L. AND BRADY N. RICHMOND, Petitioners v.
        COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 27937-07.              Filed September 14, 2009.



       R determined a deficiency in Ps’ 2005 Federal income
tax.

       Held: Ps are liable for the deficiency as determined by
R.



Peggy L. and Brady N. Richmond, pro sese.

Joseph T. Ferrick, for respondent.
                               - 2 -

             MEMORANDUM FINDINGS OF FACT AND OPINION


     WHERRY, Judge:   Petitioners are husband and wife.

Respondent determined that petitioners are liable for a $1,466

Federal income tax deficiency for their 2005 tax year.

Petitioners petitioned the Court to redetermine that deficiency.

The issues for decision are:

     (1) Whether $10,051 of the $11,8251 in Social Security

benefits that Mr. Richmond received in 2005 is includable in

petitioners’ 2005 gross income;

     (2) whether $165 of interest income that petitioners earned

in 2005 is includable in their 2005 gross income;

     (3) whether petitioners are entitled to an additional child

tax credit of $1,157; and

     (4) whether petitioners are entitled to an earned income

credit.

                         FINDINGS OF FACT

     Some of the facts have been stipulated, and the stipulated

facts and accompanying exhibits are hereby incorporated by




     1
      Mr. Richmond’s 2005 Form SSA-1099, Social Security Benefit
Statement, indicated that his net Social Security benefits for
2005 were actually $11,825.60. Respondent apparently rounded
that figure down to $11,825 and then used that rounded figure in
calculating how much of Mr. Richmond’s Social Security benefits
should be included in gross income. Despite the apparent
rounding mistake, we will use the $11,825 figure used by the
parties throughout this case.
                                 - 3 -

reference into our findings.   At the time they filed their

petition, petitioners resided in Illinois.

     During 2005 Mr. Richmond received $15,126.87 in wages,

$11,825.60 in Social Security benefits, and a $5,453 taxable

pension distribution.   During that same year Ms. Richmond

received a $29,503 taxable pension distribution.2   In addition,

$165 of interest income was deposited into accounts owned by

petitioners.   Petitioners filed a joint Form 1040, U.S.

Individual Income Tax Return, for their 2005 tax year.     They did

not report Mr. Richmond’s Social Security benefits or their

interest income on the return.

      On September 4, 2007, respondent sent petitioners a notice

of deficiency indicating that they are liable for a $1,466

Federal income tax deficiency for their 2005 tax year.

Petitioners, on December 4, 2007, filed a timely petition with

the Court.   A trial was held on September 22, 2008, in Chicago,

Illinois.

                               OPINION

I.   Taxability of Mr. Richmond’s Social Security Benefits

     Since 1983, section 86 has required some taxpayers to

include a portion of their Social Security benefits in gross


     2
      Ms. Richmond used the simplified method to determine a
lower taxable amount than the $31,685.72 that appears on her Form
1099-R, Distributions From Pensions, Annuities, Retirement or
Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Respondent
did not dispute this reduced amount.
                                - 4 -

income.3   Reimels v. Commissioner, 123 T.C. 245, 247 (2004),

affd. 436 F.3d 344 (2d Cir. 2006).      Before then, Social Security

benefits were not taxed.    Congress evidently believed that a

change was necessary to “shore up the solvency of the Social

Security trust funds and to treat ‘more nearly equally all forms

of retirement and other income that are designed to replace lost

wages’.”   Id. (quoting S. Rept. 98-23, at 25 (1983), 1983-2 C.B.

326, 328).    “[B]y taxing only a portion of the benefits, Congress

intended to allow taxpayers some cost recovery for their

contributions (i.e., for the taxes they pay into the Social

Security system).”    Roberts v. Commissioner, T.C. Memo. 1998-172,

affd. without published opinion 182 F.3d 927 (9th Cir. 1999).

     The formula for determining the portion of Social Security

benefits includable in gross income, if any, is set forth in

section 86.    Although somewhat complex, the formula provides that

taxpayers who file a joint return and whose modified adjusted

gross income plus one-half of the Social Security benefits

received exceeds an “adjusted base amount” of $44,000 must

include 85 percent of the Social Security benefits in gross

income.    Sec. 86(a)(2), (c)(2).

     Petitioners assert that they were not required to include in

gross income any portion of Mr. Richmond’s $11,825 of Social



     3
      All section references are to the Internal Revenue Code of
1986, as amended and in effect for the tax year at issue.
                               - 5 -

Security benefits.4   They make a number of arguments to support

their assertion.   First, they argue that an Internal Revenue

Service (IRS) agent told Ms. Richmond not to report the benefits

on petitioners’ return.   Second, they assert that the

instructions to the 2005 Form 1040 indicated that Social Security

benefits should not be included in income unless the taxpayer’s

filing status is married filing separate.    Third, in their brief,

petitioners argue that the Form SSA-1099, Social Security Benefit

Statement, that Mr. Richmond received from the Social Security

Administration (SSA) informed them that they should not send a

copy of the form to the IRS.   Fourth, they also note that Social

Security benefits are excluded from income in Illinois.

     Fifth, Ms. Richmond argues that she did not receive Social

Security benefits in 2005 and that she should not be taxed on the

benefits that her husband received.    She considers this a

violation of her rights and contends that respondent is



     4
      In their brief petitioners refer to the taxation of Social
Security benefits as “employment taxes”. That is not an accurate
description. The term “employment taxes” commonly refers to
taxes imposed under the Federal Insurance Contributions Act
(FICA) and the Federal Unemployment Tax Act (FUTA). See secs.
3101, 3111, 3301. The FICA tax is a 15.3-percent tax on the
wages of an employee. Secs. 3101, 3111. Employers and employees
each pay half of the FICA tax, and the employer is required to
withhold the employee’s portion. Secs. 3101, 3102(a), 3111. The
taxes collected under FICA are used to fund Social Security and
Medicare. In other words, employment taxes are taxes on wages
that are used in part to fund Social Security. When an
individual receives Social Security benefits, however, those
benefits constitute income and are subject to the income tax, not
the employment tax. Secs. 1, 61, 63, 86.
                               - 6 -

improperly treating petitioners as though they live in a

community property State.5   Finally, petitioners assert that

respondent is improperly factoring in Ms. Richmond’s pension

distribution when calculating how much of Mr. Richmond’s Social

Security benefits is taxable under section 86.   They believe that

this results in a “double TAX on my [Ms. Richmond’s] one pension

item which was already included in income.”

     As explained below, we are not persuaded by any of

petitioners’ arguments.   Mr. Richmond received $11,825 in Social

Security benefits in 2005; and together, petitioners’ modified

adjusted gross income plus one-half of the Social Security

benefits received exceeded $44,000.    Accordingly, under section

86, petitioners are required to include 85 percent, or $10,051,

of the Social Security benefits in their 2005 gross income.6



     5
      Petitioners cite 20 C.F.R. sec. 416.1202 (2005) and ask
whether it is relevant to their case. It is not relevant. The
regulation relates to an individual’s eligibility for
Supplemental Security Income (SSI) under tit. 20 of the U.S.
Code. See 20 C.F.R. sec. 416.202 (2005). For an individual to
be eligible for SSI, the individual’s resources must not exceed
certain dollar amounts. See 20 C.F.R. sec. 416.1205 (2005). The
regulation cited by petitioners defines what is included in an
individual’s resources for the purpose of determining eligibility
for SSI. It does not have any bearing on Federal income tax
issues.
     6
      In their brief and at trial petitioners questioned
respondent’s use of the $10,051 figure, noting that “they
received no Social Security benefit in the amount of $10,051.00”.
The answer is that petitioners are not required to include in
income all of the $11,825 of Social Security benefits that Mr.
Richmond received, only the portion of benefits determined
pursuant to sec. 86, which is $11,825 x 0.85 = $10,051.
                                - 7 -

     With respect to petitioners’ first argument, although it is

unfortunate that they may have received incorrect legal advice

from an IRS employee, that advice does not have the force of law

and cannot bind respondent or this Court.    See Atkin v.

Commissioner, T.C. Memo. 2008-93 (“It is the statute which

governs the determination of petitioners’ substantive tax

liability, and the statements of IRS representatives, while

understandably nettlesome to petitioners, do not alter this rule.

See Demirjian v. Commissioner, 54 T.C. 1691, 1701 (1970), affd.

457 F.2d 1 (3d Cir. 1972).”).   “[T]he authoritative sources of

Federal tax law are in the statutes, regulations, and judicial

decisions”, not in informal advice or publications.      Zimmerman v.

Commissioner, 71 T.C. 367, 371 (1978), affd. without published

opinion 614 F.2d 1294 (2d Cir. 1979).

     As to petitioners’ second and third arguments, the

instructions to Form 1040 and Form SSA-1099 are also not

authoritative sources of Federal tax law and, likewise, are not

binding on respondent or the Court.     See id.   In any event, we

believe that petitioners misinterpreted the instructions.7




     7
      This is not to say that the instructions are a model of
clarity. They are not. We understand how petitioners could have
been confused. Nevertheless, the instructions are not the law,
and their lack of clarity does not permit us to disregard the
law.
                               - 8 -

     The instructions to the 2005 Form 1040 state the following

on page 12:

     Gross income means all income you received in the form
     of money, goods, property, and services that is not
     exempt from tax, including any income from sources
     outside the United States (even if you can exclude part
     or all of it). Do not include Social Security benefits
     unless you are married filing a separate return and you
     lived with your spouse at any time in 2005.

The context of the language is extremely important in

understanding its meaning.   It appears in a chart used by

taxpayers to determine whether they are required to file a return

on the basis of their filing status, age, and amount of gross

income.   For that limited purpose, the IRS does not require

taxpayers to include Social Security benefits in gross income.

For the purpose of determining a taxpayer’s Federal income tax

liability, however, the instructions for Form 1040 for 2005 at

pages 27 and 28 include a Social Security benefits worksheet and

indicate that taxable Social Security benefits as determined on

the worksheet must be included in gross income.   Taxpayers are

instructed to use the worksheet to determine how much of their

benefits should be included in income.   In addition, although the

2005 Form SSA-1099 states “DO NOT RETURN THIS FORM TO SSA OR

IRS”, that does not mean that taxpayers can exclude Social

Security benefits from gross income.

     Concerning their fourth argument, petitioners correctly note

that Social Security benefits are not included in income for
                                - 9 -

Illinois State income tax purposes.     35 Ill. Comp. Stat. Ann.

5/203(a)(2)(L) (West 2005).   This case, however, deals with

petitioners’ Federal income tax liability, and, as we have said,

Social Security benefits are included in gross income for Federal

income tax purposes.

     Turning to petitioners’ fifth argument, it is important to

remember that it was petitioners themselves who elected to file a

joint Federal income tax return.   When taxpayers choose of their

own volition to file a joint return, their Federal income tax is

computed based on their aggregate income, i.e., the combined

income earned by both taxpayers, and their aggregate deductions,

exemptions, and credits.   Sec. 6013(d)(3); see sec. 1.6013-4(b),

Income Tax Regs.   It is for this reason--and this reason alone--

that petitioners were required to combine their incomes on their

2005 Form 1040.    Community property law (or respondent’s alleged

misinterpretation thereof) is not the culprit here.     Petitioners

seemed to understand this concept, having included Mr. Richmond’s

wage income and their respective pension distributions in their

aggregate gross income.    Mr. Richmond’s Social Security benefits

should not have been treated differently.

     With respect to petitioners’ final argument, Ms. Richmond’s

pension benefits are not being taxed twice.     The taxable portion

of her pension distribution is taxed once and only once.     To

determine how much of Mr. Richmond’s Social Security benefits is
                               - 10 -

taxable under section 86, however, we are required to look at

petitioners’ modified adjusted gross income, which includes Ms.

Richmond’s pension benefits.   See sec. 86(b).    Ms. Richmond’s

pension benefits are not being double taxed; they are just being

used to help determine how much of Mr. Richmond’s Social Security

benefits should be taxed.

II. Taxability of Petitioners’ Interest Income

     Under section 61(a)(4), interest is included in gross

income.   See sec. 1.61-7(a), Income Tax Regs. (“As a general

rule, interest received by or credited to the taxpayer

constitutes gross income and is fully taxable.”).     Although

petitioners earned $165 of interest income during 2005, they

argue that they should not be taxed on that income because their

bank “ate up the money in fees”.

     We disagree with petitioners.      They earned $165 in interest

income, and it was credited to their accounts.     They are

therefore required to include that interest in their 2005 gross

income.   Sec. 61(a)(4); sec. 1.61-7(a), Income Tax Regs.     The

fact that they later paid bank fees with the $165 has no effect

on whether they were required to include the interest in their

2005 gross income.

     In certain situations, bank fees may be deductible under

section 162 or section 212.    Petitioners have not shown, however,

that either section applies.   Moreover, they have not provided
                              - 11 -

any evidence or testimony proving that they paid bank fees and,

if so, how much they paid.   Consequently, petitioners are not

entitled to deduct any amounts they may have paid in bank fees.

III. The Child Tax Credit

     Generally, section 24(a) allows a $1,000 child tax credit

with respect to each qualifying child of the taxpayer.      The total

credits allowed under section 24(a), however, generally cannot be

more than the taxpayer’s tax liability.    Sec. 24(b)(3).   A

portion of any credits disallowed because they exceeded the

taxpayer’s tax liability may be refunded to the taxpayer under

section 24(d).   The refundable amount under section 24(d) is

referred to as an additional child tax credit.

     On their 2005 Federal income tax return, petitioners claimed

to have three qualifying children.     They could not claim a $3,000

child tax credit, however, because their reported Federal income

tax liability was only $1,569.   Accordingly, they claimed a

$1,569 child tax credit and an additional child tax credit of

$1,157.

     When respondent determined that Mr. Richmond’s Social

Security benefits and petitioners’ interest income should be

included in petitioners’ 2005 gross income, those adjustments

increased petitioners’ tax liability from $1,569 to $3,309.     As a

result, respondent allowed petitioners a $3,000 child tax credit

under section 24(a)--$1,000 per qualifying child.    Because the
                                 - 12 -

$3,000 child tax credit did not exceed their $3,309 tax

liability, respondent did not allow an additional child tax

credit under section 24(d).

      Petitioners argue that respondent improperly disallowed

their additional child tax credit.        We disagree.   Respondent’s

disallowance of the additional child tax credit was an automatic,

computational adjustment resulting from the determination that

petitioners were required to include Mr. Richmond’s Social

Security benefits and petitioners’ interest income in their gross

income.   Respondent’s adjustments were appropriate.8

IV.   The Earned Income Credit

      Section 32(a)(1) allows an eligible individual an earned

income credit against the individual’s income tax liability.

Section 32(a)(2) limits the amount of the credit allowed.         The

limitation amount is based on the amount of the taxpayer’s

income, whether the taxpayer has qualifying children, and, if so,

how many qualifying children.     For 2005, eligible taxpayers who

claimed joint filing status and who had two or more qualifying

children are allowed no earned income credit if their adjusted




      8
      Respondent’s adjustment actually allows petitioners a
larger credit (a $3,000 child tax credit) than petitioners had
claimed on their 2005 return (a $1,569 child tax credit plus a
$1,157 additional child tax credit). However, because respondent
determined that petitioners’ tax liability had increased, all of
that $3,000 child tax credit is used to offset petitioners’ tax
liability and none is left to refund to petitioners.
                              - 13 -

gross income (or, if greater, earned income) is $37,263 or more.

Rev. Proc. 2004-71, sec. 3.06(1), 2004-2 C.B. 970, 973.

     Although petitioners did not claim an earned income credit

on their 2005 Federal income tax return, they argue that

respondent wrongly disallowed an earned income credit and now

claim entitlement to a credit.9   Petitioners are not entitled to

an earned income credit.   Even if petitioners were eligible

taxpayers and had two or more qualifying children, they would not

be entitled to an earned income credit because their 2005

adjusted gross income exceeded $37,263.10

     For the foregoing reasons, we sustain respondent’s

determination of a deficiency for petitioners’ 2005 tax year.

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,


                                         Decision will be entered

                                    for respondent.




     9
      The record contains a June 22, 2007, letter from respondent
to petitioners that states with respect to petitioners 2005 tax
year that “You are not eligible for EIC because your earned
income and adjusted gross income (AGI) total is not less than
$37,263.00.”
     10
      Petitioners themselves reported adjusted gross income of
$50,083 on their 2005 return.
