Baldwin v. Comm'r of Internal Revenue

Citation84 T.C. 859,84 T.C. No. 56
Decision Date15 May 1985
Docket NumberDocket No. 14363-82.
PartiesBRETT GRAHAM BALDWIN, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
CourtUnited States Tax Court

OPINION TEXT STARTS HERE

Amounts received from the Social Security Administration as survivor benefits constitute ‘support‘ payments provided by the Federal government and not by the taxpayer-recipient for purposes of the income averaging provisions of sec. 1303(c)(1), I.R.C. 1954. KATHRYN J. SEDO and Daniel W. McDonald, for the petitioner.

GENELLE F. FORSBERG and GERALD W. LELAND, for the respondent.

SWIFT, JUDGE:

In a statutory notice dated April 6, 1982, respondent determined a deficiency in petitioner's 1979 tax liability, and additions to tax, as follows:

+-------------------------------------------------+
                ¦          ¦Additions to tax                      ¦
                +----------+--------------------------------------¦
                ¦Deficiency¦Sec. 6651(a)¦Sec. 6653(a)¦Sec. 6654(a)¦
                +----------+------------+------------+------------¦
                ¦$3,363    ¦$840.75     ¦$168.15     ¦$140.97     ¦
                +-------------------------------------------------+
                

Following concessions, the primary issue remaining for decision is whether petitioner provided at least one-half of his support during the years 1975 through 1978, thereby allowing him to properly compute his Federal income tax liability pursuant to the income averaging provisions set forth in section 1301 through 1305. 1 The resolution of this issue turns upon whether petitioner may properly treat amounts received as survivor's benefits from the Social Security Administration and the Veterans' Administration due to the death of his father as financial support that petitioner provided to himself. Respondent contends that these amounts cannot properly be treated as amounts contributed by petitioner, but are amounts received from independent sources.

Petitioner also argues that certain aspects of the income averaging provisions are unconstitutional. Also at issue herein are the additions to tax determined by respondent under sections 6651(a) (failure to file), 6653(a) (negligence), and 6654(a) (underpayment of estimated tax liability).

FINDINGS OF FACT

Some of the facts have been stipulated and are found accordingly. The pertinent facts are summarized below.

The petitioner, Brett Graham Baldwin, was a resident of Scottsdale, Arizona, at the time the petition herein was filed. Petitioner claims to have timely filed a so-called fifth amendment return‘ for 1979, although respondent has no record of such a filing. Petitioner stated that he filed such a return upon the recommendation of a local ‘tax protester‘ group in Arizona, that he did so without checking the relevant legal authorities, and that he now regrets not having done more research into the truth of the group's claims before filing such a ‘return.‘

A letter dated January 28, 1982, was sent by respondent, advising petitioner that he may be subject to civil and criminal additions and penalties for failing to file a 1979 return. Following the issue of the statutory notice herein and of an additional letter from respondent dated April 18, 1983, petitioner filed a completed 1979 Federal income tax return on or about April 12, 1983.

From 1975 to the summer of 1978, petitioner was a full-time student at Arizona State University in Tempe, Arizona. Petitioner graduated from Arizona State in December, 1978, with a Bachelor of Science degree in electrical engineering. At that time, he was twenty-one years of age. Petitioner started working at a full-time job sometime in 1978, apparently prior to graduation.

Petitioner had no taxable income in 1975 and therefore did not file a Federal income tax return that year. He did file timely individual Federal income tax returns for the years 1976, 1977, and 1978. The returns filed with respect to the years 1976 and 1977 reported zero tax liability. The 1978 return reflected a Federal income tax liability of $66.00.

During the years 1975 through 1978, petitioner's sole sources of support were academic scholarships from Arizona State University, Basic Educational Opportunity Grants (hereinafter referred to as ‘B.E.O.G.‘), Supplemental Educational Opportunity Grants (hereinafter referred to as ‘S.E.O.G. ‘), National Defense Student Loans (hereinafter referred to as ‘N.D.S.L. ‘), Social Security survivor's benefits, Veterans' Administration survivor benefits, and wages received from Arizona State University's work-study program. In the latter part of 1978, petitioner also received wages from his full-time employment.

All funds received by petitioner were nontaxable receipts to him except the wages received from the work-study program and from the start of his full-time job in 1978. The B.E.O.G. and S.E.O.G. funds were nontaxable educational grants similar to a scholarship. The N.D.S.L. funds were loans that petitioner was required to repay. The total amounts received by petitioner from each of the above sources is set forth as below:

+----------------------------------------------------------+
                ¦Source                        ¦1975  ¦1976  ¦1977  ¦1978  ¦
                +------------------------------+------+------+------+------¦
                ¦Social Security Administration¦$1,477¦$1,818¦$2,098¦$1,848¦
                +------------------------------+------+------+------+------¦
                ¦Veterans' Administration      ¦144   ¦324   ¦348   ¦256   ¦
                +------------------------------+------+------+------+------¦
                ¦Scholarships (ASU)            ¦200   ¦425   ¦450   ¦225   ¦
                +------------------------------+------+------+------+------¦
                ¦BEOG                          ¦612   ¦975   ¦807   ¦313   ¦
                +------------------------------+------+------+------+------¦
                ¦SEOG                          ¦0     ¦400   ¦1,200 ¦300   ¦
                +------------------------------+------+------+------+------¦
                ¦NDSL                          ¦0     ¦100   ¦322   ¦822   ¦
                +------------------------------+------+------+------+------¦
                ¦Wages--Work-study             ¦0     ¦550   ¦210   ¦240   ¦
                +------------------------------+------+------+------+------¦
                ¦Wages--Full-time job          ¦0     ¦0     ¦0     ¦4,323 ¦
                +------------------------------+------+------+------+------¦
                ¦Total ‘support‘               ¦$2,433¦$4,592¦$5,435¦$8,327¦
                +----------------------------------------------------------+
                

On his 1979 Federal income tax return, petitioner reported that he had wage income in the amount of $18,431.92, interest income of $86.00, moving expenses of $893.00, and employee business expenses of $854.00. The deductions have not been questioned by respondent and are not in issue. Petitioner was single and had no dependents throughout the years 1975 through 1979.

The parties have stipulated that: (1) The amounts set forth above constitute petitioner's total amounts of ‘support‘ during the years 1975-1979, and that they were actually expended for that purpose; (2) petitioner provided over one-half of his own support for 1978 from his wage income; (3) the amounts received as academic scholarships and educational grants constitute amounts of support that petitioner did not provide for himself; and (4) that amounts received as wages and loans constitute amounts that petitioner did provide for his own support.

OPINION

The major dispute in this case concerns whether amounts received by petitioner from the Social Security Administration and from the Veterans' Administration as survivor's benefits constitute support provided by petitioner to himself. If, as petitioner argues, such payments qualify as support provided by petitioner, he may compute his income tax liability for 1979 pursuant to the income averaging provisions in Sections 1301 through 1305. If either the amounts received from the Social Security Administration or the Veterans' Administration constitute amounts of support not contributed by petitioner, he will be ineligible for income averaging with respect to 1979.

Section 1303(c)(1) provides that an individual shall not be eligible for income averaging if, for any base year, 2 such individual (and his spouse, if applicable) furnished less than one-half of his support. 3 There are three exceptions to this rule provided in section 1303(c)(2), none of which applies to petitioner herein. 4

The social security payments in issue herein were authorized pursuant to the provisions of 42 U.S.C. section 402(d) et seq. (1983). Such payments were made to petitioner because of his status as a child of an individual (namely, his father) who died a ‘fully insured‘ individual under the social security system, and the fact that petitioner was a full-time student under the age of twenty-two during the years 1975 through 1979. The payments were calculated as a certain percentage of the insured individual's ‘primary insurance amount.‘ See 42 U.S.C. section 402(d)(2) (1983).

The legislative history of the 1965 amendments to the Social Security Act, which amendments provided inter alia for payments to children of fully insured individuals to continue to age 22 where the child is a full-time student, indicates that the intent of Congress was to provide a substitute for the support lost upon the death of the parent. This additional financial assistance was considered important in light of the increasing need for a college degree in order to compete effectively in the job market. The Senate Report explains—

Under present law a child beneficiary is considered dependent, and is paid benefits, until he reaches age 18, or after that age if he was disabled before age 18 and is still disabled. The committee believes that a child over age 18 who is attending school full-time is dependent just as a child under 18 or a disabled older child is dependent, and that it is not realistic to stop such a child's benefit at age 18. A child who cannot look to a father for support (because the father has died, is disabled, or is retired) is at a disadvantage in completing his education as compared with the child who can look to his father for support. Not only may the child be prevented from...

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