Lewis L. Reese - Page 6

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          their income.  Sec. 86(a) through (c).  The portion included in             
          income, never exceeding 85 percent, varies according to a formula           
          set forth in section 86(a).  This formula uses variables known as           
          “base amount” and “adjusted base amount”, which are defined under           
          section 86(c).  Under the general rule, the former is $25,000 and           
          the latter is $34,000.  Sec. 86(c)(1)(A) and (2)(A).  However,              
          with respect to a married taxpayer who does not file a joint                
          return and who “does not live apart from his spouse at all times            
          during the taxable year,” both of these amounts are zero.  Sec.             
          86(c)(1)(C) and (2)(C).                                                     
               Respondent argues that petitioner lived with his wife for a            
          portion of 1997, causing the benefits he received to fall under             
          the special rule of section 86(c)(1)(C) and (2)(C).  To this                
          effect, respondent asserts that petitioner admitted prior to                
          trial that he had lived with her for a few days in 1997.                    
          Petitioner denies making such an admission.  He testified at                
          trial that he returned to California on 2 days in connection with           
          a workers’ compensation issue, but that he did not “live” with              
          his spouse during that period.  No evidence was admitted of an              
          admission by petitioner or which otherwise contradicts                      
          petitioner’s testimony.  We accept petitioner’s testimony and               
          have found, as detailed above, that petitioner and his wife lived           

          joint return, and who do not live apart from their spouses at all           
          times during the year.  Sec. 86(c)(1).                                      

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