Joe W. Jacobs - Page 3

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               Respondent determined for 2003 a deficiency in petitioner              
          and Ivy D. Jacobs’s (Mrs. Jacobs) Federal income tax of $878.               
          The sole issue for decision is whether Social Security benefits             
          received by petitioner and Mrs. Jacobs during 2003 are includable           
          in gross income under section 86(a).                                        
                                     Background                                       
               The stipulation of facts and the exhibits received into                
          evidence are incorporated herein by reference.  At the time the             
          petition in this case was filed, petitioner resided in Oakland,             
          California.                                                                 
               Petitioner and Mrs. Jacobs, now deceased, jointly filed for            
          2003, Form 1040, U.S. Individual Income Tax Return, reporting               
          Social Security benefits of zero and adjusted gross income of               
          $36,655.39.  Mrs. Jacobs died on June 3, 2004.                              
               On March 28, 2005, respondent issued to petitioner and Mrs.            
          Jacobs a notice known as a CP2000, or Revenue Agent Report (RAR).           
          The RAR notified petitioner and Mrs. Jacobs that they failed to             
          include in their gross income for 2003, Social Security benefits            
          of $2,556 and $9,908 received by petitioner and Mrs. Jacobs,                
          respectively, during that year.  Petitioner made a Social                   
          Security repayment of $169 in 2003.  The RAR also indicated, as a           
          computational adjustment, that the proposed changes to their                
          gross income would reduce the amount of medical expenses allowed            
          as an itemized deduction on Schedule A.                                     






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