Vernon J. Nicholas, III, and Micki Nicholas - Page 6




                                        - 5 -                                         
          section 86(e), lump sum distributions of Social Security benefits           
          are includable in the taxpayer’s gross income in the taxable year           
          the benefits are received.  Petitioners did not make an election            
          under section 86(e) with respect to the lump-sum Social Security            
          disability benefits received in 1997.                                       
               Accordingly, we sustain respondent’s determination that                
          petitioners’ gross income includes 85 percent of the respective             
          Social Security disability benefits received during the years in            
          issue.                                                                      
               Reviewed and adopted as a report of the Small Tax Case                 
          Division.                                                                   


                                                  Decision will be entered            
                                             for respondent.                          
























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