- 4 -
Another adjustment made in the notice of deficiency is
computational.
Discussion
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. Sec. 86(a)(2). With respect to a married taxpayer
who files a joint return, the base amount and the adjusted base
amount are $32,000 and $44,000, respectively. Sec. 86(c)(1)(B)
and (2)(B).3 The adjustment made in the notice of deficiency
2 In this case, ignoring adjustments not relevant here,
petitioners’ modified adjusted gross income equals their adjusted
gross income. Sec. 86(b)(2).
3 Prior to 1984, certain disability benefits were excludable
from an employee’s gross income. Maki v. Commissioner, T.C.
Memo. 1996-209. However, this section was repealed, and “since
1984 Social Security disability benefits have been treated in the
same manner as other Social Security benefits.” Id.
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Last modified: May 25, 2011