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member contributes to the disability benefit program is not a
factor in the benefit calculation.
OPINION
I. Contentions of the Parties
Both parties agree that at least a portion of Mr. Wright’s
disability retirement payments is includable in his gross income
and that a portion of the payments may be excludable for the 1999
and 2000 taxable years.4 The parties disagree as to the
exclusion ratio for the payments.
Petitioners principally contend that the disability
retirement payments are subject to the rules set forth under
section 105(a) and (e) for amounts received under accident and
health plans and are, therefore, excludable from gross income to
the extent of employee contributions to the plan. Petitioners
further maintain that their calculations based on a 40-percent
employee contribution are correct. In the alternative,
petitioners argue that because respondent chose not to contest
petitioners’ treatment in prior taxable years, respondent is
precluded from attempting to make adjustments to their 1999 and
2000 returns.
4 At trial, respondent initially stated that petitioners
were not allowed to exclude any disability payments received in
1999 or 2000 from gross income. However, the notice of
deficiency allowed an amount excludable from gross income as
determined by STRS, and respondent has not sought an increase in
the amount of deficiency.
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