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The sole issue for decision is whether benefits received
from the U.S. Railroad Retirement Board (USRRB) during the year
at issue constitute gross income to petitioners.
Some of the facts have been stipulated and are so found.
The stipulation of facts and attached exhibits are incorporated
herein by this reference. At the time the petition in this case
was filed, petitioners resided in Washington, Illinois.
References to petitioner are to Olin Gibson.
Petitioner was employed as a railroad worker until his
retirement on June 16, 1989. For the taxable year 1991,
petitioner and his wife received $13,384 of "Total Gross Taxable"
benefits from the USRRB. Although these amounts were identified
as "Social security benefits" on line 21a of petitioners' 1991
Federal income tax return, Form 1040, they were not entered as
taxable amounts on the adjacent line 21b. Respondent determined
in the notice of deficiency that this omission was not proper.
Petitioners argue that benefits received from the USRRB are
not taxable. This, however, is simply not the case. Since 1983,
railroad retirees have been taxed on two categories of benefits.
"Tier 1 benefits", which are treated in the same manner as Social
Security benefits, are taxed under the provisions of section 86.
"Tier 2 benefits", which are in the nature of pension benefits,
are taxed under the provisions of section 72(r). See Ernzen v.
United States, 875 F.2d 228 (9th Cir. 1989); Wallers v. United
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Last modified: May 25, 2011