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accident or health insurance for personal injuries or sickness
shall be included in gross income to the extent such amounts are
either paid by the employer or are attributable to contributions
by the employer that were not included in the employee's gross
income.
At trial, we had the opportunity to observe petitioner,
evaluate his demeanor, and assess his credibility. We found
petitioner to be a credible witness, and we have no reason to
question his veracity. Petitioner's testimony provides the
evidentiary basis for our finding that petitioner specifically
elected, in August 1994, not to pay the premiums for his
disability insurance with pre-tax dollars pursuant to “premium
conversion”.
On brief, respondent states as follows:
The determinative factual issue in this case is
whether the premiums were contributed by petitioner on
a pre-tax or after-tax basis. If they were paid out of
pre-tax monies as respondent contends, then the
disability benefits received by petitioner would be
taxable. If, on the other hand, the disability
insurance premiums were paid out of after-tax dollars
as petitioners contend, then the disability benefits
received by petitioner would not be taxable.
In view of our finding that petitioner paid the premiums for
his disability insurance with after-tax dollars, we hold that the
disability benefits received by petitioner in 1997 are excludable
from gross income for that year. Sec. 104(a)(3). Accordingly,
respondent’s determination to the contrary is not sustained.
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