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Discussion1
A. Social Security Benefits
Section 61(a) provides that, except as otherwise provided by
law, gross income includes all income from whatever source
derived. Relevant for our purposes, section 86(a) provides that
if the taxpayer’s modified adjusted gross income2 plus one-half
of the Social Security benefits received by the taxpayer exceeds
the adjusted base amount, then gross income includes the lesser
of: (1) The sum of (a) 85 percent of such excess, plus (b) the
lesser of (i) one-half of the Social Security benefits received
during the year or (ii) one-half of the difference between the
adjusted base amount and the base amount of the taxpayer; or (2)
85 percent of the Social Security benefits received during the
taxable year.3 See sec. 86(a)(2). With respect to a married
taxpayer who does not file a joint return and who does not live
apart from his spouse at all times during the taxable year, both
1 Because there are no disputes with respect to any factual
issues in this case, we need not consider the application of sec.
7491(a). Higbee v. Commissioner, 116 T.C. 438 (2001).
2 In this case, ignoring adjustments not relevant here,
petitioner’s modified adjusted gross income equals his adjusted
gross income. See sec. 86(b)(2).
3 Prior to 1984, certain disability benefits were
excludable from an employee’s gross income under section 105.
However, this section was repealed, and “since 1984 Social
Security disability benefits have been treated in the same manner
as other Social Security benefits.” Maki v. Commissioner, T.C.
Memo. 1996-209.
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