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886-A,2 involving an audit of petitioners' 1987 tax year. Form
886-A, was a handwritten statement addressed to petitioners and
stated the following:
The enclosed information indicates that the income
is considered taxable Social Security Benefits and not
disability payments that are non-taxable. You will
receive a refund for the amount you overpaid if you owe
no other taxes.
The Form 886-A was the enclosure referenced on petitioners' 1991
Federal income tax return. Respondent contends that Social
Security disability benefits are taxed pursuant to section 86 and
that one-half of the amount received is taxable to petitioner
during the year in issue.
The first issue for decision is whether petitioner's Social
Security disability payments are taxable pursuant to section 86.
We begin by noting that petitioners have the burden of proving
that respondent's determination is in error. Rule 142(a); Welch
v. Helvering, 290 U.S. 111 (1933).
Before 1984, certain payments made in lieu of wages to an
employee who was retired by reason of permanent and total
disability were excludable from the employee's gross income under
section 105(d).3 However, the Social Security Act Amendments of
1983 repealed the limited exclusion of disability payments
2 Agreement as to Final Determination of Tax Liability.
3 Sec. 105(d) was repealed effective for taxable years
after 1983 by the Social Security Act Amendments of 1983, Pub. L.
98-21, sec. 122(b), 97 Stat. 85.
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