                            T.C. Summary Opinion 2016-20



                            UNITED STATES TAX COURT



      JOHN THOMPSON, JR., AND DESREE THOMPSON, Petitioners v.
         COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 3094-14S.                             Filed May 12, 2016.



      John Thompson, Jr., and Desree Thompson, pro sese.

      Paul W. Isherwood, Peter R. Hochman, and John Chinnapongse, for

respondent.



                                 SUMMARY OPINION


      ASHFORD, Judge: This case was heard pursuant to the provisions of

section 7463 of the Internal Revenue Code in effect when the petition was filed.1


      1
          Unless otherwise indicated, all section references are to the Internal
                                                                           (continued...)
                                         -2-

Pursuant to section 7463(b), the decision to be entered is not reviewable by any

other Court, and this opinion shall not be treated as precedent for any other case.

      Respondent determined a deficiency of $7,147 in petitioners’ Federal

income tax and an accuracy-related penalty pursuant to section 6662(a) of $1,429

for the 2011 taxable year. After concessions,2 the issue for decision is whether,

pursuant to section 86(d)(3), petitioners had taxable Social Security income of

$30,519 for 2011 as a result of the worker’s compensation payments that

petitioner John Thompson, Jr., received during that year. We hold that they did.

                                     Background

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

facts and the attached exhibits are incorporated herein by this reference.

Petitioners resided in California at the time they filed their petition with the Court.

Hereafter, references to petitioner in the singular shall denote John Thompson, Jr.




      1
       (...continued)
Revenue Code in effect for the year at issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure. Monetary amounts are rounded to the
nearest dollar.
      2
       Petitioners failed to address in their pleadings and at trial respondent’s
determination that they received income of $3,148 from cancellation of
indebtedness. We thus deem petitioners to have conceded this issue. See Rule
34(b)(4). Respondent conceded the accuracy-related penalty in its entirety at trial.
                                        -3-

       In 2009 petitioner suffered an injury while performing services as a postal

worker for the U.S. Postal Service, which necessitated several surgeries and

resulted in his temporary inability to work. Petitioner received worker’s

compensation benefits for this injury under the Federal Employees Compensation

Act, 5 U.S.C. secs. 8101-8193 (2012), through the Department of Labor Office of

Workers’ Compensation Programs from July 19, 2009 to December 23, 2013.

       On February 14, 2011, petitioner applied to the Social Security

Administration (SSA) for Supplemental Security Income (SSI) disability benefits.

In a notice of disapproved claim dated March 10, 2011, SSA initially denied his

application because he had “too much income to be eligible for SSI”. However,

three months later, SSA approved his application for disability benefits, effective

February 2010, in a notice of award dated June 5, 2011. The notice of award

further states:

       We have to consider workers’ compensation and/or public disability
       payments when we figure a Social Security benefit. The following
       will explain how these payments affect Social Security benefits. For
       more information, please read the enclosed pamphlet, “How Workers’
       Compensation and Other Disability Payments May Affect Your
       Social Security Benefit.”

       The pamphlet explains how we reduce your Social Security disability
       checks if the money which you would receive from Social Security
       and workers’ compensation payments add up to more than 80 percent
                                        -4-

      of your monthly average current earnings. We found that 80 percent
      of your average current earnings is $3,457.60.

      We have to take into account your workers’ compensation payment of
      $3,794.60 when we figure your Social Security benefits. Because you
      receive this payment, we are withholding the benefits you are due.

      We are withholding your monthly Social Security checks beginning
      February 2010, which is the first month when you were entitled to
      both Social Security disability benefits and workers’ compensation
      payments.

      Petitioner never actually received SSI disability benefits in 2011.

Nevertheless, SSA issued petitioner a Form SSA-1099, Social Security Benefit

Statement, which reflected benefits paid in 2011 of $35,905 attributable to

“Workers’ compensation offset”. Petitioners did not report any of this amount on

their 2011 Form 1040, U.S. Individual Income Tax Return.

      Respondent determined that $30,519 (or 85%) of the worker’s

compensation offset reported on petitioner’s Form SSA-1099 should have been

included as taxable Social Security income.3 The notice of deficiency mailed to

petitioners on December 2, 2013, reflects that determination. Petitioners timely

petitioned this Court disputing respondent’s determination, contending that (1)


      3
       Married taxpayers filing a joint return whose modified adjusted gross
income, plus one-half of their Social Security benefits, exceeds $44,000 must
include up to a maximum of 85% of their Social Security benefits in their gross
income. See sec. 86(a), (b), and (c).
                                         -5-

SSA never paid petitioner the reported SSI disability benefits; (2) Social Security

benefits are not a component of worker’s compensation benefits; and (3) the

worker’s compensation benefits petitioner received from the Department of Labor

are otherwise not taxable.

                                     Discussion

      Gross income includes “all income from whatever source derived”, unless

specifically excluded. Sec. 61(a). Generally, gross income does not include

“amounts received under workmen’s compensation acts as compensation for

personal injuries or sickness”. Sec. 104(a)(1). However, section 86 provides for

the inclusion of Social Security benefits in gross income and defines those benefits

as any amount received by the taxpayer by reason of entitlement to a monthly

benefit under the Social Security Act. Sec. 86(d)(1)(A).

      In addition, section 86(d)(3) provides that where a taxpayer receives less in

Social Security benefits because he is instead receiving worker’s compensation

benefits, then the amount of worker’s compensation benefits that causes the

reduction (the so-called offset amount) is treated as though it were a Social

Security benefit for purposes of determining gross income. In other words,

taxable Social Security benefits include the amount of worker’s compensation

payments to the extent that they reduce, or offset, the total Social Security benefits
                                         -6-

to which the recipient is entitled; such offsets do not reduce the taxable amount of

Social Security benefits despite SSA not actually paying such benefits. This result

was specifically contemplated by Congress. See, e.g., Moore v. Commissioner,

T.C. Memo. 2012-249; Mikalonis v. Commissioner, T.C. Memo. 2000-281; Willis

v. Commissioner, T.C. Memo. 1997-290.

      Section 86(d) is unambiguous, and its application to the undisputed facts of

this case is clear. Petitioners stipulated that during 2011, petitioner received

worker’s compensation benefits and that the SSI disability benefits that he was

otherwise entitled to receive in 2011 were entirely offset on account of petitioner’s

receipt, since July 2009, of worker’s compensation benefits. We acknowledge that

if petitioner had not applied to SSA for SSI disability benefits, then petitioners

would not find themselves in the situation they are in now. Petitioners’ frustration

is thus understandable, but our role is to apply the tax laws as written. See Eanes

v. Commissioner, 85 T.C. 168, 171 (1985).

      Accordingly, pursuant to section 86(d)(3), we sustain respondent’s

determination that for 2011 petitioners had $30,519 of taxable Social Security

income.
                            -7-

To reflect the foregoing,


                                   Decision will be entered for

                             respondent as to the deficiency and for

                             petitioners as to the accuracy-related

                             penalty under section 6662(a).
