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The basis for respondent’s determination in the statutory
notice of deficiency does not appear in the record. However, it
is respondent’s position in this proceeding that the full amount
that petitioner received from the RRB, $19,844.96, is annuity or
pension income, and that $6,554.96 of this amount is includable
in gross income.
Railroad retirement benefits are divided into two portions
for purposes of Federal income taxation. In general terms, the
portion of the benefits which is equal to the benefit to which a
taxpayer would have been entitled under the Social Security Act
if the taxpayer had been covered by the Social Security Act is
referred to as the “tier 1 railroad retirement benefit”. Sec.
86(d)(4). Tier 1 benefits are includable in gross income to the
same extent as are Social Security benefits. Sec. 86(d)(1)(B).
The benefits other than tier 1 benefits (commonly referred to as
“tier 2 benefits”) generally are includable in gross income to
the same extent as are amounts received from a section 401(a)
qualified plan. Sec. 72(r). As such, these benefits generally
are treated as annuity payments subject to the provisions of
section 72. Sec. 402(a).
As a general rule, tier 2 benefits are includable in gross
income under section 72(a). However, a portion of these benefits
may be excluded from income under section 72(b) or (d). These
provisions exclude from a taxpayer’s gross income that portion of
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Last modified: May 25, 2011