                   T.C. Summary Opinion 2006-18



                      UNITED STATES TAX COURT



         TONY G. AND ROBERTA A. MONTGOMERY, Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No.   3564-04S.             Filed February 6, 2006.


     Tony G. Montgomery, pro se.

     Michael W. Bitner, for respondent.



     COUVILLION, Special Trial Judge:     This case was heard

pursuant to section 7463 in effect when the petition was filed.1

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

and this opinion should not be cited as authority.



     1
      Unless otherwise indicated, section references hereafter
are to the Internal Revenue Code in effect for the year at issue.
This case is decided without regard to the burden of proof. In
some instances, sec. 7491 shifts the burden of proof to
respondent. Since this case involves only a question of law,
sec. 7491 is not applicable here.
                                - 2 -


     Respondent determined a deficiency of $1,586 in petitioners’

Federal income tax for the year 2001.

     The sole issue for decision is whether Social Security

benefits received by Tony G. Montgomery (petitioner) during 2001

are includable in gross income under section 86(a).

     Some of the facts were stipulated.    Those facts and the

accompanying exhibits are so found and are incorporated herein by

reference.    Petitioners’ legal residence at the time the petition

was filed was Marion, Illinois.

     Petitioner was a career employee of The Kroger Co. (Kroger),

a nationwide super market chain, having worked for Kroger for 28

years.   He was employed in a managerial capacity overseeing

approximately 80 Kroger stores in southern Indiana and southern

Illinois.    His duties required visiting each store to make sure

that the merchandising policies of the company were being

followed.    In effect, he served as a liaison between the

individual stores and the company headquarters.

     Petitioner was seriously injured during the course of his

employment sometime during 1990.    While he was at a store at

Mercury, Illinois, in connection with a remodeling of the store,

a customer accidentally rammed him with a shopping cart.     The

accident, as it turned out, caused petitioner to suffer serious

spinal injuries.    Although petitioner initially was not disabled,

and he continued working, he did so with pain, which, over
                                - 3 -


several years, progressed in intensity.    He had several back

surgeries and, finally, was unable to work.    He was retired for

disability in May 1999.

     During his career with Kroger, petitioner availed himself of

purchasing disability insurance that would pay benefits to

employees injured or otherwise disabled in connection with their

employment.    Petitioner’s condition warranted benefits under this

insurance.    Upon his retirement, petitioner began receiving these

benefits.    The parties agree that these benefits were not

includable in petitioner’s gross income.    Petitioner also

received workman’s compensation benefits, which are not at issue

in this case.    Under the terms of the insurance policy at issue

here, the benefits terminated whenever the employee became

entitled to Social Security benefits.

     Under the terms of the employer-sponsored insurance,

petitioner received benefits from the date of his retirement from

1999 up to the year 2001.    The terms of that policy, however,

required the employee-beneficiary to apply for disability Social

Security benefits, and, if the employee were found eligible for

disability Social Security, the benefits of the employer-

sponsored insurance would cease.

     As required, petitioner applied for disability Social

Security benefits, and he was determined to be totally and

permanently disabled.    The issue in this case involves the
                                - 4 -


disability Social Security benefits petitioner received during

2001.    Petitioner’s position is that the disability Social

Security benefits are not includable in his income because these

benefits are merely a continuance of the employer-sponsored

insurance benefit and, since those latter benefits are not

taxable, that exempt characteristic extends or carries over to

the disability Social Security benefits.    Petitioner did not

include these benefits as income on his 2001 Federal income tax

return.    Of the $41,685 in Social Security benefits he received

during 2001, respondent determined that $9,511 of these benefits,

pursuant to section 86(a), was includable in income.

     Prior to 1984, certain payments made in lieu of wages to an

employee who was retired by reason of permanent and total

disability were excludable from the employee’s gross income under

section 105(d).    However, the Social Security Act Amendments of

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

limited exclusion of disability payments provided by section

105(d), effective with respect to taxable years beginning after

1983.    Since 1984, Social Security disability benefits have been

treated in the same manner as other Social Security benefits.

Sec. 86(d)(1).2   These benefits are subject to tax under the


     2
      Sec. 86(d)(1) defines “Social Security benefit” as any
amount received by reason of entitlement to a monthly benefit
under title II of the Social Security Act, which includes
                                                   (continued...)
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provisions of section 86.   Maki v. Commissioner, T.C. Memo. 1996-

209; see Ernzen v. United States, 875 F.2d 228 (9th Cir. 1989);

Wallers v. United States, 847 F.2d 1279 (7th Cir. 1988).

     Section 61(a) provides that gross income includes all income

from whatever source derived, unless excludable by a specific

provision of the Code.   Moreover, section 86(a), for the year at

issue, provides that gross income includes Social Security

benefits in an amount equal to a prescribed formula therein

provided.   Petitioner has not challenged the computation by

respondent under this formula.

     The Court rejects petitioner’s contention that disability

Social Security benefits constitute accident or health insurance

under section 104(a)(3), or that the Social Security benefits

come under the “umbrella” of the tax-exempt benefits he was

receiving from the employer-sponsored insurance.   The repeal by

Congress of former section 105(d), which specifically provided

for the exclusion from income of certain disability benefits and

the enactment of section 86, with the section 86(d)(1)(A)

provision that the term “Social Security benefits” includes

benefits received under title II of the Social Security Act

(which includes disability Social Security benefits), indicates

quite clearly to the Court that Congress did not intend that


     2
      (...continued)
disability insurance benefit payments.
                               - 6 -


disability Social Security benefits could be construed as an

accident or health plan under section 104(a)(3), or that

disability Social Security benefits are otherwise excludable from

gross income.   The Court, therefore, rejects petitioner’s

contention on this issue.   Respondent is sustained.

     Reviewed and adopted as the report of the Small Tax Case

Division.



                                       Decision will be entered

                               for respondent.
