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derived. Relevant for our purposes, section 86(a) provides that
if the taxpayer’s modified adjusted gross income1 plus one-half
of the Social Security benefits received by the taxpayer exceeds
the adjusted base amount, then gross income includes the lesser
of: (1) The sum of (a) 85 percent of such excess, plus (b) the
lesser of (i) one-half of the Social Security benefits received
during the year or (ii) one-half of the difference between the
adjusted base amount and the base amount of the taxpayer; or (2)
85 percent of the Social Security benefits received during the
taxable year.2 See sec. 86(a)(2). With respect to married
taxpayers who file a joint return for 2001, the base amount and
the adjusted base amount are $32,000 and $44,000, respectively.
Sec. 86(c)(1)(B) and (2)(B). In the absence of a section 86(e)
election,3 Social Security benefits are included in the
1 In this case, petitioners’ modified adjusted gross income
equals their adjusted gross income. See sec. 86(b)(2).
2 Prior to 1984, certain disability benefits were
excludable from an employee’s gross income under sec. 105.
However, this section was repealed, and “since 1984 Social
Security disability benefits have been treated in the same manner
as other Social Security benefits.” Maki v. Commissioner, T.C.
Memo. 1996-209.
3 In the case of a lump-sum payment of Social Security
benefits, sec. 86(e) provides for an election that limits the
portion of the lump-sum payment otherwise includable in the
recipient’s income. Petitioners made no such election in this
case.
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Last modified: May 25, 2011