                  T.C. Summary Opinion 2002-141



                     UNITED STATES TAX COURT



   ROBERT P. GEISZLER, JR. AND PENNY V. GEISZLER, Petitioners
         v. COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4600-01S.             Filed October 29, 2002.



     Robert P. Geiszler and Penny V. Geiszler, pro sese.

     Shelley T. Van Doran, for respondent.



     CARLUZZO, 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.    Rule references

are to the Tax Court Rules of Practice and Procedure.    The

decision to be entered is not reviewable by any other court, and

this opinion should not be cited as authority.
                                - 2 -



     Respondent determined a deficiency of $1,193 in petitioners’

1997 Federal income tax.    The issue for decision is whether

certain benefits received by Penny V. Geiszler on account of an

employment-related injury are includable in petitioners’ income.

Background

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

Petitioners are husband and wife.    They filed a timely 1997 joint

Federal income tax return.    At the time the petition was filed,

petitioners resided in Houston, Texas.    References to petitioner

are to Penny V. Geiszler.

     During 1991, petitioner suffered an employment-related

injury.    As a result of her injury, she was entitled to receive,

and received during 1997 and prior years, the following:

(1) State worker’s compensation benefits; (2) Social Security

disability insurance (SSDI) benefits; and (3) long-term

disability benefits attributable to a plan offered by her

employer, the cost of which was paid partly by her employer and

partly by her.

     Notwithstanding the seriousness and debilitating nature of

her injury, applying for and receiving the above-mentioned

benefits proved to be a frustrating experience for petitioner.

For example, her request for worker’s compensation benefits was

originally denied by her employer’s worker’s compensation

carrier.   She began receiving worker’s compensation benefits
                                - 3 -

several years after her injury, but only after she successfully

appealed the denial through a State administrative proceeding.

Pursuant to the provisions of her long-term disability plan, she

was required to apply for SSDI coverage, which became effective

sometime during 1994.   The SSDI benefits that she received

reduced, dollar for dollar, her long-term disability benefits.

Similarly, her SSDI benefits were offset, dollar for dollar, by

the worker’s compensation benefits that she received.   See 42

U.S.C. sec. 424a (1994).   Receiving benefits from three sources

further complicated matters, and she repeatedly received

inconsistent notices from the payors regarding overpayments and

other irregularities.

     According to a Form SSA-1099 issued by the Social Security

Administration, petitioner received SSDI benefits totaling

$10,779 during 1997.    Because of the offset provisions referred

to above, worker’s compensation benefits of $8,406 received by

petitioner during 1997 are included in the amount reported on the

Form SSA-1099.

     Petitioners reported adjusted gross income of $41,600 on

their 1997 return, which amount consists entirely of the wages

earned by Robert Geiszler during that year.   As in prior years,

none of the benefits that petitioner received on account of her

injury are included in petitioners’ income.
                                 - 4 -

     In the notice of deficiency, respondent determined that a

portion of the SSDI benefits (including the amount offset by

petitioner’s worker’s compensation benefits) are includable in

petitioners’ income.    Other adjustments made in the notice of

deficiency are not in dispute.

Discussion

     Worker’s compensation benefits are generally excluded from

the recipient taxpayer’s gross income.      Sec. 104(a)(1).   Social

Security benefits, including SSDI benefits, are includable in the

recipient taxpayer’s income in accordance with a formula that

takes into account a variety of factors, including the amount of

Social Security benefits received by the taxpayer and the

taxpayer’s filing status.    See sec. 86.    If a taxpayer’s Social

Security benefits are reduced by amounts received under a

worker’s compensation act, then, for Federal income tax purposes,

the worker’s compensation benefits are treated as Social Security

benefits.    See sec. 86(d)(3)1; Mikalonis v. Commissioner, T.C.



     1
         Sec. 86(d)(3) provides:

          SEC. 86(d)(3). Workmen’s Compensation Benefits
     Substituted for Social Security Benefits.--For purposes of
     this section, if, by reason of sec. 224 of the Social
     Security Act (or by reason of sec. 3(a)(1) of the Railroad
     Retirement Act of 1974), any social security benefit is
     reduced by reason of the receipt of a benefit under a
     workmen’s compensation act, the term “social security
     benefit” includes that portion of such benefit received
     under the workmen’s compensation act which equals such
     reduction.
                                - 5 -

Memo. 2000-281.

     In this case, petitioner’s SSDI benefits were reduced,

dollar for dollar, by the worker’s compensation benefits that she

received.    Her situation is clearly contemplated by section

86(d)(3), and the worker’s compensation benefits that she

received during the year in issue are subject to Federal income

tax as provided in that statute.

     Petitioners do not suggest that respondent’s application of

section 86 is mathematically erroneous, and we are satisfied that

it is not.    Petitioners explain that petitioner would not have

applied for SSDI benefits unless required to do so by her long-

term disability plan.    They question the fairness of the

situation, pointing out that, had she not applied for SSDI

benefits, her worker’s compensation benefits would not be subject

to Federal income tax.    According to petitioners, forgoing

petitioner’s SSDI benefits might have been to their financial

advantage.

     We appreciate petitioners’ consternation; nevertheless, it

is the application of controlling law to the undisputed facts

that informs our decision–-not whether the result is fair or, as

petitioners suggest, unfair.    Section 86(d)(3) requires that a

portion of the SSDI benefits (including the amount offset by

worker’s compensation benefits) received by petitioner during
                              - 6 -

1997 must be included in petitioners’ income for that year.

Respondent’s determination in this regard is therefore sustained.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing, and the resolution of undisputed

adjustments,

                                           Decision will be

                                      entered under Rule 155.
