Robert P. Geiszler, Jr. and Penny V. Geiszler - Page 5




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               In the notice of deficiency, respondent determined that a              
          portion of the SSDI benefits (including the amount offset by                
          petitioner’s worker’s compensation benefits) are includable in              
          petitioners’ income.  Other adjustments made in the notice of               
          deficiency are not in dispute.                                              
          Discussion                                                                  
               Worker’s compensation benefits are generally excluded from             
          the recipient taxpayer’s gross income.  Sec. 104(a)(1).  Social             
          Security benefits, including SSDI benefits, are includable in the           
          recipient taxpayer’s income in accordance with a formula that               
          takes into account a variety of factors, including the amount of            
          Social Security benefits received by the taxpayer and the                   
          taxpayer’s filing status.  See sec. 86.  If a taxpayer’s Social             
          Security benefits are reduced by amounts received under a                   
          worker’s compensation act, then, for Federal income tax purposes,           
          the worker’s compensation benefits are treated as Social Security           
          benefits.  See sec. 86(d)(3)1; Mikalonis v. Commissioner, T.C.              


               1  Sec. 86(d)(3) provides:                                             
                    SEC. 86(d)(3).  Workmen’s Compensation Benefits                   
               Substituted for Social Security Benefits.--For purposes of             
               this section, if, by reason of sec. 224 of the Social                  
               Security Act (or by reason of sec. 3(a)(1) of the Railroad             
               Retirement Act of 1974), any social security benefit is                
               reduced by reason of the receipt of a benefit under a                  
               workmen’s compensation act, the term “social security                  
               benefit” includes that portion of such benefit received                
               under the workmen’s compensation act which equals such                 
               reduction.                                                             





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