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However, the law recognizes that a taxpayer who receives a
lump-sum payment of Social Security benefits attributable in part
to prior taxable years may be adversely affected by the
“bunching” of income. Section 86(e)(1) is designed to provide a
measure of relief to such taxpayers.
Section 86(e) provides as follows:
SEC. 86(e). Limitation On Amount Included Where
Taxpayer Receives Lump-Sum Payment.--
(1) Limitation.–-If–-
(A) any portion of a lump-sum payment of
social security benefits received during the
taxable year is attributable to prior taxable
years, and
(B) the taxpayer makes an election under this
subsection for the taxable year,
then the amount included in gross income under
this section for the taxable year by reason of the
receipt of such portion shall not exceed the sum
of the increases in gross income under this
chapter for prior taxable years which would result
solely from taking into account such portion in
the taxable years to which it is attributable.
Section 86(e)(1) implicitly recognizes the principle that a
lump-sum payment of Social Security benefits is to be included in
gross income (pursuant to the formula of section 86(a)) in the
year in which the lump-sum payment is received and not in the
years to which the payment is attributable. However, upon a
taxpayer’s election, section 86(e)(1) does limit the amount
properly includable in gross income for the taxable year of
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Last modified: May 25, 2011