Thomas William McAdams - Page 4




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          Boise address and slept inside the house located at the Boise               
          address.  Petitioner and Mrs. McAdams maintained separate                   
          bedrooms at the Boise address.                                              
               During 1998, petitioner’s main source of income was his                
          military retirement pay.  During 1998, petitioner also received             
          Social Security income in the amount of $11,181.60.  Petitioner             
          received a Form SSA-1099, Social Security Benefit Statement, for            
          1998 reporting “Benefits Paid in 1998” and “Net Benefits for                
          1998” in the amount of $11,181.60.                                          
               Petitioner filed his 1998 Federal individual income tax                
          return claiming “Married filing separately” status.  When he                
          prepared his 1998 tax return, petitioner filled out the Social              
          Security Benefits Worksheet.  Petitioner listed $25,000 as his              
          “base amount” because he believed that he lived apart from his              
          spouse for the entire year.  On his return, petitioner reported             
          $11,181.60 of Social Security benefits and zero as the taxable              
          amount of his Social Security benefits.                                     
               In the notice of deficiency, respondent increased                      
          petitioner’s interest income by $52 and reduced petitioner’s                
          “base amount” to zero, thereby increasing the taxable amount of             
          petitioner’s Social Security benefits to $9,218.                            
                                       OPINION                                        
               Section 86 provides for the taxability of Social Security              
          benefits pursuant to a statutory formula.  If a taxpayer’s                  






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