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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 married
taxpayers who file a joint return for 2000, as petitioners did,
the base amount and the adjusted base amount are $32,000 and
$44,000, respectively. Sec. 86(c)(1)(B) and (2)(B).
Social Security benefits are included in the recipient’s
gross income in the taxable year in which the benefits are
received. Sec. 86(a)(1). An election may be made by a taxpayer
who receives a lump-sum payment of Social Security benefits
during the taxable year in which a portion of the benefits is
attributable to previous taxable years. Sec. 86(e). Section
86(e) provides that, if the election is made, the amount included
in gross income for the taxable year of receipt must not exceed
the sum of the increases in gross income for those previous
taxable years that would result from taking into account the
3 Before 1984, certain disability benefits were excludable
from an employee’s gross income under sec. 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section was repealed, and “since 1984 Social Security disability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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Last modified: May 25, 2011