James K. and Patricia J. Goodchild - Page 4

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               Respondent determined that petitioners did not report                  
          pension income in the amount of $12,873.  Respondent also                   
          determined that petitioners did not report as income taxable                
          benefits of $5,126 from the $6,030 paid to petitioners by the               
          Social Security Administration.  Petitioners take the position              
          that the Social Security benefits are subsumed in the section               
          105(c) exclusion issue.                                                     
               Both parties argued the case based on the applicability of             
          section 105(c).  Petitioners argue that they are entitled to an             
          exclusion of the disability payments under section 105(c).                  
          Respondent’s position is that section 105(c) does not apply under           
          the facts in this case for a number of reasons.                             
               Initially, we find it unnecessary to decide whether the                
          Minnesota State Retirement System qualifies as a health or                  
          accident plan because petitioners cannot satisfy one of the                 
          requirements under section 105(c).                                          
               Pursuant to section 105(a), payments received by an employee           
          under an employer-provided accident or health insurance plan for            
          personal injuries or sickness are generally includable in the               
          employee’s income.  However, section 105(c) grants an exception             
          under which such payments may be excluded from an employee’s                
          gross income if the requirements of section 105(c) are met.                 
               Section 105(c) provides that:                                          
               SEC. 105(c). Payments Unrelated to Absence From Work.–-                
               Gross income does not include amounts referred to in                   

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