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Gross income includes all income from whatever source
derived unless excluded by a provision of the Internal Revenue
Code. Sec. 61(a). Section 86(a) provides that gross income
includes Social Security benefits in an amount equal to a
prescribed formula.3 Social Security benefits mean any amount
received by a taxpayer by reason of entitlement to a monthly
benefit under title II of the Social Security Act. Sec.
86(d)(1)(A). Title II of the Social Security Act provides for
disability benefits. See 42 U.S.C. secs. 401-434 (2000).
Prior to 1984, disability payments received by a taxpayer
who retired due to a permanent disability were excluded from
gross income pursuant to section 105(d). The Social Security
Amendments of 1983, Pub. L. 98-21, sec. 122(b), 97 Stat. 87,
repealed section 105(d) and the limited exclusion of disability
benefits for tax years beginning after 1983. Since 1984, Social
Security disability benefits have been taxed in the same manner
2(...continued)
them that the March 8 letter was incorrect and that petitioner’s
workers’ compensation benefits are includable in petitioner’s
Social Security benefits for 2003.
We agree with petitioners that respondent’s Appeals Office
has caused petitioners a great deal of confusion in the instant
case. Nonetheless, for reasons stated below, petitioner’s
workers’ compensation benefits are includable in gross income as
taxable Social Security benefits notwithstanding respondent’s
erroneous conclusions in the case at docket No. 22889-04S
regarding petitioners’ 2002 taxable year.
3Petitioners have not challenged the formula provided in
sec. 86(a).
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Last modified: May 25, 2011