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the distributions were paid on account of an industrial injury,
they are excludable from gross income under section 104(a)(1).
State law creates legal interests and rights; the Federal
revenue acts designate when and how interests or rights, so
created, shall be taxed. United States v. Mitchell, 403 U.S.
190, 197 (1971); see also Estate of Posner v. Commissioner, T.C.
Memo. 2004-112. The Form 1099-R issued by the State of
California is evidence that the State determined that
petitioner’s legal right to the distributions were not from an
industrial injury and that the distributions were made under Cal.
Govt. Code sec. 21150.
The Court’s duty is to ascertain when and how such legal
right, i.e., the distributions, will be taxed. See Morgan v.
Commissioner, 309 U.S. 78, 80 (1940). Petitioner has not offered
any evidence to show why the distributions are not of the type
that is taxable. Therefore, the distributions are includable in
her gross income. Sec. 61(a).
Petitioner also argues that under Kane v. United States, 43
F.3d 1446 (Fed. Cir. 1994), the California Employees’ Retirement
Law is in the nature of a workmen’s compensation act because it
is a “dual-purpose statute” that provides payment for both work-
related and non-work related disabilities. Petitioner’s
argument, however, is unpersuasive. Even if the California
Employees’ Retirement Law is a “dual purpose statute”, petitioner
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