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Nerilyn A. Dela Cruz, received Social Security benefits of
$3,931. Petitioners filed a joint Federal income tax return in
1997 and reported $70,601 in adjusted gross income in that year,
excluding the Social Security benefits. Respondent issued
petitioners a statutory notice of deficiency with the
determination that they had unreported income of $9,619 from
these Social Security benefits.2
The inclusion of Social Security benefits in gross income is
governed by section 86. Social Security disability benefits are
treated in the same manner as other Social Security benefits.
Sec. 86(d)(1); Thomas v. Commissioner, T.C. Memo. 2001-120.
Taxpayers who file a joint return and whose modified adjusted
gross income plus half of the Social Security benefits received
is greater than $32,000 must include a portion of the benefits in
their income. Sec. 86(a) through (c). Benefits generally are
included in income in the year in which they are received, even
if the benefits are attributable to prior years. Secs. 86(e),
451(a). The portion included in income, never exceeding 85
percent, varies according to a formula set forth in section
86(a). Petitioners had modified adjusted gross income of at
least $70,601, see sec. 86(b)(2), and received benefits of
$11,316. Because their modified adjusted gross income plus half
2Respondent also determined that petitioners had unreported
income of $38 in dividends. Petitioners concede this amount.
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