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between the total cost of coverage selected by petitioner and the
amount of the Met Life contribution, i.e., $5,733 less $4,811 or
$922, was deducted from petitioner's wages on a pre-tax basis.
In August 1989, petitioner was injured and filed a claim for
disability benefits. For 1992, the taxable year in issue,
petitioner received disability benefits from Met Life in the
amount of $35,520.60. The amount of such benefits was based on
the applicable percentage of petitioner's salary and his years of
service prior to the date of his disability.
Met Life issued petitioner a Form W-2 (Wage and Tax
Statement) for 1992. On such form, Met Life characterized the
disability benefits that were paid to petitioner as compensation.
On their 1992 Federal income tax return, petitioners did not
report as income the disability benefits that petitioner received
from Met Life. In the notice of deficiency, respondent
determined that such benefits constituted taxable income.
Respondent also determined that petitioners were liable for an
accuracy-related penalty for negligence under section 6662(a).5
OPINION
As a general rule, section 104(a)(3) excludes from an
employee's gross income amounts received through accident or
health insurance for personal injuries or sickness. However, the
section provides an exception for amounts received by an employee
5 As previously stated, respondent subsequently conceded the
accuracy-related penalty.
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