Merker v. Commissioner
| Decision Date | 18 June 1997 |
| Docket Number | Docket No. 26855-95. |
| Citation | 73 T.C.M. 3087 |
| Parties | Margaret M. Merker v. Commissioner. |
| Court | U.S. Tax Court |
This case was assigned pursuant to the provisions of section 443A(b)(3) and Rules 180, 181, and 182.1
Respondent determined deficiencies in petitioner's Federal income taxes for the taxable years 1992 and 1993 in the amounts of $799 and $791, respectively. Respondent also determined additions to tax pursuant to section 6651(a) in the respective amounts of $199.75 and $197.75. Petitioner resided in Chicago, Illinois, at the time she filed her petition.
After concessions,2 the primary issue is whether amounts received by petitioner as a disability retirement annuity under the Federal Employees' Retirement System (FERS)3 are excludable from gross income for the years in issue.
Petitioner worked in a distribution center for the U.S. Postal Service (Postal Service) from August 1984 to October 1990. As a result of the inhalation of dust emanating from the postal machines petitioner developed severe asthma or "occupational disease". To compound petitioner's medical problems, petitioner was injured when she fell while on the job. Petitioner has severe arthritis, has had one knee replaced, and, as of the date of trial, was scheduled for surgery to replace her other knee. These maladies have left petitioner completely and permanently disabled. In October 1990, at the age of 54, petitioner retired from the Postal Service due to her disability. Petitioner subsequently began receiving a FERS disability retirement annuity (disability annuity). Petitioner received disability annuity payments during 1992 and 1993 in the amounts of $10,954 and $11,182, respectively.
Petitioner was told by the U.S. Office of Personnel Management (OPM) that her disability annuity was not subject to Federal income tax. No Federal income tax was withheld from the payments. As a result of the advice from OPM petitioner did not file Federal income tax returns for the taxable years 1992, 1993, or 1994.
Respondent issued a notice of deficiency for the taxable years 1992 and 1993. In the notice of deficiency respondent determined that petitioner failed to report the disability annuity payments, as well as interest and dividend income in the amounts of $258 and $149, respectively, as gross income for the taxable years 1992 and 1993. As of the date of trial, no notice of deficiency had been issued to petitioner for the 1994 taxable year.
OPINIONPetitioner's brief does not directly address the taxability of the disability annuity but rather expresses petitioner's frustration and anger at the U.S. Government. Her various statements, requests, and arguments reflect these feelings. This Court is a court of limited jurisdiction. See sec. 7442; Wilt v. Commissioner [Dec. 32,151], 60 T.C. 977, 978 (1973). Our jurisdiction to redetermine a deficiency is dependent on the issuance of a valid notice of deficiency. Sec. 6213(a); Rule 13(a); Estate of Bartels v. Commissioner [Dec. 51,386], 106 T.C. 430, 435 (1996); Levitt v. Commissioner [Dec. 47,692] 97 T.C. 437, 441 (1991). Our jurisdiction does not extend to settling employment disputes with various departments and agencies of the United States. See sec. 7442; Steines v. Commissioner [Dec. 47,774(M)], T.C. Memo. 1991-588, affd. without published opinion 12 F.3d 1101 (7th Cir. 1993). The issue over which we have jurisdiction is whether petitioner's FERS disability annuity payments, or any portion thereof, are excludable from gross income.4
Section 61(a) defines gross income broadly as "all income from whatever source derived". The Supreme Court "has given a liberal construction to this broad phraseology in recognition of the intention of Congress to tax all gains except those specifically exempted." Commissioner v. Glenshaw Glass Co. [55-1 USTC ¶ 9308], 348 U.S. 426, 430 (1955). Exclusions from income are matters of legislative grace and are construed narrowly. Commissioner v. Schleier [95-1 USTC ¶ 50,309], 515 U.S. ___, ___, 115 S. Ct. 2159, 2163 (1995); Mostowy v. United States [92-1 USTC ¶ 50,311], 966 F.2d 668, 671 (Fed. Cir. 1992). A taxpayer seeking a deduction or exclusion "must be able to point to an applicable statute and show that he comes within its terms." New Colonial Ice Co. v. Helvering [4 USTC ¶ 1292], 292 U.S. 435, 440 (1934); Commissioner v. Schleier, supra.
Generally, section 72(b) excludes from gross income any amount received as an annuity under an annuity, endowment, or life insurance contract to the extent such an amount is attributable to the taxpayer's investment in the contract. Section 1.72-15(b), Income Tax Regs., provides that, as a general rule, section 72 does not apply to any amount received as an accident or health benefit.
Section 104(a) excludes from gross income any amounts described in paragraphs (1) through (5) of that section. Paragraphs (4) and (5) of section 104(a) are, on their face, inapplicable to the facts before us, and we focus our attention on the remaining paragraphs.5 In addition, section 105(a) includes in gross income certain amounts received under accident and health plans.
Section 104(a)(1) excludes from gross income "amounts received under workmen's compensation acts as compensation for personal injuries or sickness". To meet the definition of "workmen's compensation acts" for purposes of section 104(a)(1) the statute in issue must require, as a precondition to eligibility for benefits, that the injury be incurred in the course of employment. Take v. Commissioner [86-2 USTC ¶ 9788], 804 F.2d 553, 557 (9th Cir. 1986), affg. [Dec. 41,153] 82 T.C. 630, 634 (1984); Haar v. Commissioner [Dec. 39,049], 78 T.C. 864, 868 (1982), affd. per curiam [83-2 USTC ¶ 9451] 709 F.2d 1206 (8th Cir. 1983). The relevant inquiry is into the nature of the statute pursuant to which the payment is made and not the source of the particular taxpayer's injury. Smelley v. United States [92-2 USTC ¶ 50,595], 806 F. Supp. 932, 935 (N.D. Ala. 1992), affd. per curiam 3 F.3d 389 (11th Cir. 1993). Thus, if the statute does not qualify, the fact that the taxpayer's injury was in fact work related is irrelevant. Id.
Eligibility for disability retirement benefits under FERS is dependent on completion of 18 months of creditable civilian service and a determination of disability. 5 U.S.C. sec. 8451(a)(1)(A) (1994). Disability is defined in 5 U.S.C. sec. 8451(a)(1)(B) (1994), which provides:
For purposes of this subsection, an employee shall be considered disabled only if the employee is found by the Office [OPM] to be unable, because of disease or injury, to render useful and efficient service in the employee's position.
Under this statute a taxpayer's disability, and thus eligibility for benefits, depends upon the ability to perform the tasks required by the employment, not the place of injury. Petitioner's disability annuity payments were made pursuant to 5 U.S.C. section 8451(a)(1). Because that section does not distinguish between injuries occurring on the job or elsewhere, section 104(a)(1) does not exclude the disability annuity payments received by petitioner from gross income. See Haar v. Commissioner, supra at 866-868 ().6
Section 104(a)(2) excludes from gross income "the amount of any damages received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal injuries or sickness". "The term `damages received (whether by suit or agreement)' means an amount received (other than workmen's compensation) through prosecution of a legal suit or action based upon tort or tort type rights, or through a settlement agreement entered into in lieu of such prosecution." Sec. 1.104-1(c), Income Tax Regs. Thus, the exclusion must derive from some sort of tort claim against the payor. Rickel v. Commissioner [90-1 USTC ¶ 50,200], 900 F.2d 655, 658 (3d Cir. 1990), affg. in part and revg. in part on other grounds [Dec. 45,546] 92 T.C. 510 (1989).
The Federal Employees' Compensation Act provides compensation to Federal employees for work-related injuries. 5 U.S.C. secs. 8101-8151 (1994). The liability of the United States or any instrumentality thereof, in or under any judicial proceeding, civil action, workmen's compensation statute, or Federal tort liability statute, is expressly limited to the relief provided in the Federal Employees' Compensation Act. 5 U.S.C. sec. 8116(c). Petitioner, however, received her disability annuity under 5 U.S.C. secs. 8451-8456 (1994). Since the exclusive legal remedy for redress of petitioner's tort claims against the Federal Government resulting from on the job injuries is contained in the Federal Employees' Compensation Act, it is axiomatic that petitioner's disability annuity, received under a different set of statutes, must have been received for a different purpose. See Flaherty v. Commissioner [Dec. 43,674(M)], T.C. Memo. 1987-61 (); see also Federal Employees' Retirement System Act of 1986, Pub. L. 99-335, sec. 100A, 100 Stat. 516 (). Thus, section 104(a)(2) does not apply here.
Section 104(a)(3) excludes from gross income amounts received by...
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