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The inclusion of Social Security benefits in gross income is
governed by section 86. Social Security disability benefits are
treated in the same manner as other Social Security benefits.
Sec. 86(d)(1); Thomas v. Commissioner, T.C. Memo. 2001-120.
Taxpayers who file a joint return and whose modified adjusted
gross income plus half of the Social Security benefits received
is greater than $32,000 must include a portion of the benefits in
their income. Sec. 86(a) through (c). The portion, never
exceeding 85 percent, varies according to a formula set forth in
section 86(a). Petitioners had modified adjusted gross income of
at least $58,534, see sec. 86(b)(2), and received benefits of
$13,857. Because their modified adjusted gross income plus half
their benefits exceeds $44,000 by at least $21,463, they must
include in income 85 percent of the benefits. See sec. 86(a),
(c). Thus, respondent is correct in his determination that
petitioners must include in income 85 percent of the Social
Security disability benefits, or $11,778.
Petitioners do not dispute receiving $13,857 in Social
Security benefits. Their sole argument is that the IRS has made
inconsistent rulings regarding whether the benefits are taxable.
They assert that an IRS employee agreed that the benefits were
not taxable with respect to a prior year. We note that the law
governing this area has changed over the years. However, we need
not address whether the employee’s treatment was correct with
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Last modified: May 25, 2011