James K. and Patricia J. Goodchild - Page 5

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               subsection (a) to the extent such amounts–                             
                    (1) constitutes payment for the permanent loss or                 
                    loss of use of a member or function of the body, or the           
                    permanent disfigurement, of the taxpayer, his spouse,             
                    or a dependent (as defined in section 152), and                   
                    (2) are computed with reference to the nature of the              
                    injury without regard to the period the employee is               
                    absent from work.                                                 
          Thus, a necessary predicate for exclusion under section 105(c) is           
          that the amounts are computed “without regard to the period the             
          employee is absent from work.”  Armstrong v. Commissioner, T.C.             
          Memo. 1993-579.                                                             
               The Minnesota State Retirement System provides that                    
          disability payments are to be made to employees found to be                 
          “totally and permanently disabled”.  Minn. Stat. sec. 352.113               
          subdiv. 1, sec. 352.01 subdiv. 22 (2001).  The statute defines              
          total and permanent disability as the employee’s “inability to              
          engage in any substantial gainful activity by reason of any                 
          medically determinable physical * * * impairment that has existed           
          or is expected to continue for a period of at least one year.”              
          Minn. Stat. sec. 352.01 subdiv. 17 (2001).  The statute goes on             
          to provide that if “the employee is no longer permanently and               
          totally disabled, or is engaged in or can engage in a gainful               
          occupation, payments of the disability benefit by the fund must             
          be discontinued.”  Minn. Stat. sec. 352.113 subdiv. 6 (2001).               
               Thus, the disability payments under the Minnesota State                
          Retirement System cover only the period of time during which an             

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