                   T.C. Summary Opinion 2006-196



                      UNITED STATES TAX COURT



    THOMAS WAYNE AND ROSALIE GERALDINE KEENE, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 21153-05S.                Filed December 27, 2006.



     Thomas Wayne and Rosalie Geraldine Keene, pro se.

     Brenda Fitzgerald, for respondent.



     WELLS, Judge:   This case was heard pursuant to the

provisions of section 7463 in effect at the time the petition was

filed.   The decision to be entered is not reviewable by any other

court, and this opinion should not be cited as authority.    Unless

otherwise indicated, all section references are to the Internal

Revenue Code, as amended.
                               - 2 -

     Respondent determined a deficiency in petitioners’ Federal

income tax of $1,995 for their 2003 taxable year.   The issue we

decide is whether certain disability benefits received by

petitioner Thomas Wayne Keene (petitioner) as workers’

compensation are includable in gross income pursuant to section

86(a).

                            Background

     Some of the facts and certain exhibits have been stipulated.

The parties’ stipulations of fact are incorporated in this

opinion by reference and are found as facts in the instant case.

At the time of filing the petition in the instant case,

petitioners resided in Warner Robins, Georgia.

     During 2003, petitioner received disability benefits from

the U.S. Department of Labor (DOL), Office of Workers’

Compensation Programs, for a back injury that petitioner suffered

on February 23, 1994.   During 2003, petitioner also received

Social Security disability benefits from the Social Security

Administration (SSA).   According to the SSA, petitioner’s primary

disability is “discogenic/degenerative disorder of the back” and

his secondary disability is “diabetes mellitus”.

     The SSA reported to the Internal Revenue Service that

petitioner had received “Net Benefits for 2003" totaling $12,019,

of which $9,706 was paid by DOL as workers’ compensation

benefits.   On the basis of a letter from the SSA, petitioner
                              - 3 -

calculated that his taxable Social Security benefits for 2003

were $1,3761 and reported that amount on his 2003 tax return.

Respondent determined that petitioner’s taxable Social Security

benefits totaled $10,216.15, $8,840.15 greater than the amount

reported by petitioner.

                           Discussion

     Petitioners contend, inter alia, that the Workers’

Compensation benefits petitioner received from DOL are not

taxable because they were not paid by the SSA.2   We disagree.

     1
      The SSA letter petitioner used to calculate his taxable
Social Security benefits states that petitioner’s monthly Social
Security benefits for 2003 would be $192.70, minus a $58.70
deduction for Medicare, resulting in $134 to be deposited in
petitioner’s bank account each month.

     It is unclear how petitioner determined his taxable Social
Security benefits totaled $1,376, because $134 multiplied by 12
months equals $1,608. We note that $192.70 multiplied by 12
months equals $2,312.40, and that the difference between
petitioner’s $12,019 net Social Security benefits and the $9,706
paid by DOL is $2,313.
     2
      Petitioners also contend that the issue in the instant case
was previously decided in their favor in a Tax Court case at
docket No. 22889-04S regarding their 2002 taxable year.
Petitioners also rely on a letter from respondent’s Appeals
Office dated Mar. 8, 2005, implying that respondent wrongly
included petitioner’s workers’ compensation benefits in
determining petitioners’ Social Security benefits for 2003.

     We note that respondent and petitioner signed an agreed
decision in the case at docket No. 22889-04S based on what
respondent now contends was an erroneous conclusion by
respondent’s Appeals Office. We also note that after
respondent’s Appeals Office realized the error contained in the
Mar. 8, 2005, letter to petitioners, respondent’s Appeals Office
sent another letter dated July 18, 2005, to petitioners informing
                                                   (continued...)
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     Gross income includes all income from whatever source

derived unless excluded by a provision of the Internal Revenue

Code.    Sec. 61(a).   Section 86(a) provides that gross income

includes Social Security benefits in an amount equal to a

prescribed formula.3    Social Security benefits mean any amount

received by a taxpayer by reason of entitlement to a monthly

benefit under title II of the Social Security Act.     Sec.

86(d)(1)(A).    Title II of the Social Security Act provides for

disability benefits.     See 42 U.S.C. secs. 401-434 (2000).

     Prior to 1984, disability payments received by a taxpayer

who retired due to a permanent disability were excluded from

gross income pursuant to section 105(d).     The Social Security

Amendments of 1983, Pub. L. 98-21, sec. 122(b), 97 Stat. 87,

repealed section 105(d) and the limited exclusion of disability

benefits for tax years beginning after 1983.     Since 1984, Social

Security disability benefits have been taxed in the same manner

     2
      (...continued)
them that the March 8 letter was incorrect and that petitioner’s
workers’ compensation benefits are includable in petitioner’s
Social Security benefits for 2003.

     We agree with petitioners that respondent’s Appeals Office
has caused petitioners a great deal of confusion in the instant
case. Nonetheless, for reasons stated below, petitioner’s
workers’ compensation benefits are includable in gross income as
taxable Social Security benefits notwithstanding respondent’s
erroneous conclusions in the case at docket No. 22889-04S
regarding petitioners’ 2002 taxable year.
     3
      Petitioners have not challenged the formula provided in
sec. 86(a).
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as other Social Security benefits and subject to tax pursuant to

section 86.   Sec. 86(d)(1); Thomas v. Commissioner, T.C. Memo.

2001-120 (and cases cited therein).       A reduction of Social

Security disability benefits due to the receipt of benefits under

a workmen’s compensation act does not reduce the total amount of

taxable Social Security benefits.    Sec. 86(d)(3); Mikalonis v.

Commissioner, T.C. Memo. 2000-281.       Accordingly, we hold the

amounts petitioner received from DOL as workers’ compensation

benefits are includable in gross income as taxable Social

Security disability benefits.

     To reflect the foregoing,


                                              Decision will be entered

                                         for respondent.
