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III. Taxability of the Disability Retirement Benefit
A. Gross Income
Section 61(a) specifies that, “Except as otherwise
provided”, gross income includes “all income from whatever source
derived”. The construction of section 61 is broad, and any
“‘exclusions to income must be narrowly construed.’”
Commissioner v. Schleier, 515 U.S. 323, 328 (1995)(quoting United
States v. Burke, 504 U.S. 229, 248 (1992)(Souter, J., concurring
in judgment)). Taxpayers seeking an exclusion from gross income
must demonstrate they are eligible for the exclusion and bring
themselves “within the clear scope of the exclusion”. Dobra v.
Commissioner, 111 T.C. 339, 349 n.16 (1998).
Annuities and pensions are enumerated among the forms of
income within the purview of section 61(a). Sec. 61(a)(9), (11).
Section 72 elaborates on section 61(a)(9) and (11) by providing
specific rules applicable to taxation of, inter alia, annuities
and distributions from qualified employer retirement plans. See
also sec. 402(a). Section 72(a) reiterates the general rule of
inclusion in gross income, unless otherwise provided. Section
72(b),6 however, provides otherwise to the extent of permitting
6 SEC. 72. ANNUITIES; CERTAIN PROCEEDS OF ENDOWMENT AND
LIFE INSURANCE CONTRACTS.
(b) Exclusion Ratio.--
(1) In general.--Gross income does not
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