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employer contributions to the extent such amounts (1) constitute
“payment for the permanent loss or loss of use of a member or
function of the body, or the permanent disfigurement” of the
taxpayer, and (2) are computed “with reference to the nature of
the injury without regard to the period the employee is absent
from work.” Courts have interpreted section 105(c) to exclude
payments from gross income only if the plan or contract under
which such payments are made varies the amount of the payments
according to the type and severity of the injury suffered by the
employee. Rosen v. United States, 829 F.2d 506, 509-510 (4th
Cir. 1987); Beisler v. Commissioner, 814 F.2d 1304, 1307 (9th
Cir. 1987), affg. en banc T.C. Memo. 1985-25.
Under the ERS, computation of an ordinary disability
retirement allowance does not vary with the nature of the injury,
as required by section 105(c)(2); instead, all members found to
be incapacitated and entitled to ordinary disability retirement
benefits receive an allowance in the form of an annuity
equivalent to a member’s accumulated contributions at the time of
retirement, and a pension based on a formula involving a member’s
“average final compensation”. See Baltimore County Code secs.
23-53, 23-54 (1988). Accordingly, section 105(c) does not apply
to exclude from gross income the ordinary disability retirement
benefits received by petitioners in taxable year 2000.
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