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repay it, the overpayment is, in effect, a loan to him that
should not be included in his income.
Generally, loan proceeds are not income to the borrower.
Although we understand why petitioner might view the overpayment
as a loan, for Federal income tax purposes, an overpayment of
Social Security benefits is not treated as a loan to the
recipient.
An individual’s Social Security benefits are subject to
reduction if the individual’s other income exceeds a certain
level during a particular year. See 42 U.S.C. sec. 403. The
extent of the reduction often cannot be determined until year’s
end when the individual’s other income for the entire year is
known. Similarly, the extent of an overpayment of Social
Security benefits resulting from such a reduction often cannot be
determined until year’s end. Under those circumstances, an
overpayment of Social Security benefits made in one year would
have to be recovered in subsequent years. See 42 U.S.C. sec.
404. The legislative history accompanying section 86(d)
indicates that the Congress was mindful of the potential negative
Federal income tax consequences facing a taxpayer in such a
situation and in the enactment of section 86(d)(2) intended to
provide a mechanism “to prevent a taxpayer from being subject to
taxation on his benefits in those situations in which a taxpayer
must repay a portion of those benefits because he has been
overpaid previously.” S. Rept. 98-23 at 27 (1983), 1983-2 C.B.
326, 329.
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