                  T.C. Summary Opinion 2003-81



                     UNITED STATES TAX COURT



          WESLEY T. AND RUTH T. ENLOE, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 14031-01S.              Filed June 19, 2003.



     William J. Bergner, for petitioners.

     Harriet E. Downs, for respondent.



     DEAN, Special Trial Judge:     This case was heard under the

provisions of section 7463 of the Internal Revenue Code as in

effect at the time the petition was filed.    Unless otherwise

indicated, all subsequent section references are to the Internal

Revenue Code in effect for the year at 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 petitioners' Federal

income tax of $4,223 for 1999.    The issue for decision is whether

petitioners may exclude from income pension payments received by

Wesley T. Enloe (petitioner).    Whether petitioners must also

include in income Social Security benefits received by petitioner

is a computational matter that will be resolved by the decision

of the Court on the exclusion of pension income issue.

     The stipulated facts and exhibits received into evidence are

incorporated herein by reference.    At the time the petition in

this case was filed, petitioners resided in Oklahoma City,

Oklahoma.

                            Background

     Petitioner was for many years employed by Chicago Bridge &

Iron (Iron) as either a boilermaker or a welder.    In April of

1992 petitioner sustained injuries to his right eye, forehead,

nose, and spine when he was struck on the head by a dropped sheet

of plywood.   He was found permanently partially disabled by the

California Worker's Compensation Appeals Board (Board).    The

Board determined petitioner to be 17-1/2 percent permanently

disabled due to the neck injury.

     On April 1, 1996, petitioner filed an application for

disability insurance benefits with the Social Security

Administration (SSA) alleging that he had been unable to work

since 1995 due to his neck injury and also due to obstructive
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airway disease.    On May 29, 1997, the SSA administrative law

judge determined that petitioner was entitled to Social Security

disability insurance benefits.    He was then 58 years old.

     Under a collective bargaining agreement between Iron and the

Boilermaker-Blacksmith International Union, petitioner was a

beneficiary of the Boilermaker-Blacksmith National Pension Trust

(Pension Trust).    The Pension Trust adopted a plan denominated

the "pension plan" that was funded by amounts paid to the trust

for the employees by their employer.     Under the pension plan,

beneficiaries could qualify for four types of pensions, an "age

pension", an early retirement pension, a disability pension, and

a "vested pension".

     Under the plan, to qualify for an "age pension" the employee

must be 65 or older and have at least 1,000 hours of work in

"Covered Employment" without a permanent break in covered

employment.   The age pension could be made up of three

components, the "basic pension", the "regular past service

pension", and the "special past service pension".    The monthly

amount of the "basic pension" is computed as 46.75 percent of the

total contributions made to the plan on behalf of the employee

divided by 12.    If the employee has at least 15 years of "Pension

Credit", he can receive an additional "regular past service

pension", a monthly amount based on the number of years of
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service.   If the employee has less than 15 years of pension

credit, he may qualify for a "special past service pension".

     To qualify for a disability pension under the plan, the

employee must:   (a) Have at least 1,000 hours of work in "Covered

Employment" without a permanent break in covered employment; and

(b) be totally disabled and awarded a Social Security or Railroad

Retirement Disability Benefit before age 65.   If the employee

qualifies for the disability pension, the amount of the

disability pension "is calculated in the same way as the Age

Pension." (Emphasis added.)   Under the plan, "When a Disability

Pensioner reaches age 65, pension benefits will automatically

become an Age Pension".   Petitioner was determined to be totally

disabled under the pension plan and to be qualified for a

disability pension.

     During 1999, petitioner received pension payments of

$20,115.   The Pension reported the pension payments as income on

Form 1099-R, Distributions From Pensions, Annuities, Retirement

or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.    Federal

income tax of $127.04 was withheld from the pension

distributions.

     Petitioners reported "Total pensions and annuities" of

$20,116 on line 16a of their Federal income tax return but line

16b of the return, "Taxable amount", was left blank.   Petitioners
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reported Social Security benefits of $15,498 on line 20a of the

return but line 20b, "Taxable amount", was left blank.

     The Commissioner issued a notice of deficiency determining

that petitioners received in 1999 taxable pension and annuity

income of $20,115 and taxable Social Security income of $9,748.

                             Discussion

     Petitioners do not deny that they received the pension and

Social Security payments.    Petitioners argue, however, that the

pension distributions are amounts received through accident or

health insurance that are excludable from income under section

105(c).    Petitioners argue further that if the pension

distributions are excluded, the Social Security payments are not

taxable under section 86 because their joint income is less than

$32,000.    Because the Court decides this case without regard to

the burden of proof, section 7491 is inapplicable.

     Gross income includes all income from whatever source

derived, unless specifically excluded from income under the

exclusion provisions of the Internal Revenue Code.     Secs. 61,

101-139.    Section 61 specifically lists "pensions" as a source of

gross income.    Sec. 61(a)(11); sec. 1.61-11, Income Tax Regs.

Generally, any amount distributed to a distributee by an

employees trust is taxable to the distributee in the taxable year

of the distribution under section 72.     Sec. 402(a) and (b).
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     Amounts received by an employee under accident or health

insurance funded by the employer are generally also includable in

a taxpayer's income.   Sec. 105(a).    Section 105(c), however,

permits the exclusion from gross income of payments from accident

or health insurance if the following two requirements are met:

(1) The payments are for the permanent loss or loss of use of a

member or function of the body, or permanent disfigurement, of

the taxpayer, his spouse, or a dependent; and (2) the payments

are computed with reference to the nature of the injury without

regard to the period the employee is absent from work.     Amounts

received through an accident or health plan are generally equated

with amounts received through accident or health insurance.       Sec.

105(e).

     For petitioners to properly exclude their pension

distributions from income, they must first show that the amounts

petitioner received were received through accident or health

insurance or through an employee's accident or health plan for

personal injury or sickness.   See sec. 105(a), (e)(1); sec.

1.105-5(a), Income Tax Regs.   They must also prove that the

amounts constituted payment for the permanent loss or loss of use

of a member or function of petitioner's body under section

105(c)(1).   And, finally, they must demonstrate that the amount

of the payments was "computed with reference to the nature of the
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injury without regard to the period * * * [he was] absent from

work."   Sec. 105(c)(2).

     Since the plan in this case is plainly labeled a "pension

plan", petitioners must argue that it serves a dual capacity as

an accident or health plan as well.     The regulations permit a

dual function.    See sec. 1.401-1(b)(1)(ii), Income Tax Regs.

     Generally, pension plans and accident or health plans serve

different purposes.    Pension plans are designed to provide an

employee with predetermined fixed payments over a period of

years, usually for life.    Sec. 1.401-1(b)(1), Income Tax Regs.

The amounts of pension payments are usually measured by such

factors as the length of the employee's service with the employer

and the compensation received by the employee.     Id.   On the other

hand, accident or health plans are designed to provide payments

to employees in the event of illness or injury and are not based

on the employee's compensation and length of service.

     In order to show that petitioner's pension plan was a dual

purpose plan, and falls within section 105(a), petitioners must

show that the plan was intended to provide accident or health

benefits.   Berman v. Commissioner, 925 F.2d 936, 939 (6th Cir.

1991), affg. T.C. Memo. 1989-654; Estate of Hall v. Commissioner,

T.C. Memo. 1996-93, affd. without published opinion 103 F.3d 112

(3d Cir. 1996).
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     Ordinarily, a plan intended to provide accident or health

coverage will contain certain indicia reflecting that purpose.     A

plan might state that its purpose is to qualify as an accident or

health plan within the meaning of the Internal Revenue Code and

that the benefits payable under the plan are eligible for income

tax exclusion.   Under an accident or health plan, it might be

specified that the benefits payable are those amounts incurred

for medical care in the event of personal injury or sickness.

The plan might also specify that the benefits payable are limited

to amounts incurred for medical care in the event of personal

injury or sickness and provide for the specific reimbursement of

such expenses.   A plan might also allow an employee to be

compensated for specific injuries or illnesses, such as the loss

of use of an arm or leg.   Although these and similar provisions

are not prerequisites to the existence of an accident or health

plan, their absence plainly militates against a finding that a

pension plan serves a dual purpose.    See Berman v. Commissioner,

supra; Caplin v. United States, 718 F.2d 544, 549 (2d Cir. 1983);

Estate of Hall v. Commissioner, supra.    None of the expected

provisions are found in petitioner's pension plan.   Petitioners

also failed to produce any evidence of any accident or health

claim's ever having been made or paid under the pension plan.

This is strong evidence against the existence of a dual purpose.

Berman v. Commissioner, supra.
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     In addition, the terms of the pension plan demonstrate that

petitioner's benefits were computed solely on the basis of his

length of service and salary and not on the basis of his

disability.   Therefore, the conditions of section 105(c)(2) are

not met.    See Hines v. Commissioner, 72 T.C. 715, 720 (1979)

(denying section 105(c) treatment to incapacitated pilot where

the amount of the distribution was not based on the nature of his

injury); see also Gordon v. Commissioner, 88 T.C. 630, 640-641

(1987); Laverty v. Commissioner, 61 T.C. 160, 167 (1973), affd.

per curiam 523 F.2d 479 (9th Cir. 1975).

     The Court finds that petitioner received pension payments

and did not receive payments from an accident or health plan or

through an accident or health insurance agreement.     The Court

further finds that even if the pension plan did operate as an

accident or health plan, or accident or health insurance, the

payments to petitioner were not computed with reference to the

nature of his injury.

     Respondent's determination that petitioners must include in

income the pension payments and Social Security disability

payments made to petitioner is sustained.

     Reviewed and adopted as the report of the Small Tax Case

Division.

                                           Decision will be entered

                                     for respondent.
