Take v. C.I.R., 85-7614

• Decision Date: 13 November 1986
• Docket Number: No. 85-7614,85-7614
• Parties: -6206, 55 USLW 2297, 86-2 USTC P 9788 Thomas TAKE and Janice Take, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE SERVICE, Respondent.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 553

804 F.2d 553

58 A.F.T.R.2d 86-6206, 55 USLW 2297, 86-2

USTC P 9788

Thomas TAKE and Janice Take, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE SERVICE, Respondent.

No. 85-7614.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Sept. 2, 1986.

Decided Nov. 13, 1986.

William Van Doren, Anchorage, Alaska, for petitioners.

Roger M. Olsen, Martha B. Brissette, Dept. of Justice, Washington, D.C., for respondent.

Appeal from the United States Tax Court.

Before SNEED, KENNEDY and WIGGINS, Circuit Judges.

KENNEDY, Circuit Judge:

Thomas Take, and his wife Janice, appeal from the Tax Court's decision that payments received by Take in 1979 and 1980 were not excludable from income on their joint tax returns as "amounts received under [a] workmen's compensation act[ ]." I.R.C. Sec. 104(a)(1) (1982).

Take was employed for about ten years as a fire fighter with the municipality of Anchorage, Alaska. Before that, he served as a volunteer fire fighter in and near Anchorage. Take was involved in fighting thousands of fires. On one occasion, he was on a fire line for seventy-two hours. He was twice overcome by smoke or toxic fumes. In the Anchorage department, he was promoted through the ranks to battalion chief and retired with the rank of captain.

In approximately 1977, Take discovered that he had an irregular heartbeat. After two years of medical care, his doctor advised him to change his profession, and to have a pacemaker installed. On May 29, 1979, Take's physician wrote a letter to the Chief of the Anchorage Fire Department recommending medical retirement.

The municipality of Anchorage had enacted, by ordinance, a Retirement Plan for Police Officers and Fire Fighters. Included in this plan were benefits for retirement (Anchorage, Alaska, Administrative Code Sec. 3.85.030 (1977)), occupational disability (Anchorage, Alaska, Administrative Code Sec. 3.85.040 (1977)), and non-occupational disability (Anchorage, Alaska, Administrative Code Sec. 3.85.050 (1977)). Benefits for occupational disability were awarded as follows:

3.85.040 Occupational disability.

A. A member who, due to an occupational disability, is unable to perform his assigned duties, shall receive a monthly pension of 66 2/3% of his gross monthly compensation at the time of disability.... The Retirement Board shall determine whether an occupational disability exists based upon medical reports and other evidence satisfactory to the Retirement Board. The Retirement Board shall in all instances recognize the below provisions; however, consideration will not be limited to these provisions:

1. Any injury received while performing official duties for the Municipality of Anchorage which renders a member incapable of performing normal assigned duties will be construed as an occupational disability....

2. The cumulative effect of the constant contact with that portion of the citizenry which suffers from infectious tuberculosis, the frequent strenuous duties encountered in performing daily assigned duties as police officers and fire fighters, and of the inhalation of smoke, toxic gases, chemical fumes and other toxic vapors on the heart, lungs, and respiratory system shall be construed as an injury received or disease contracted while in the performance of duty; therefore, heart, lung and respiratory system illnesses shall be construed as occupational disabilities. A retired member hired on or after July 1, 1977 receiving benefits under Section 3.85.030 or Section 3.85.050 shall not be eligible for occupational disability benefits under this section if heart or respiratory disability occurs after the seventh anniversary of the member's retirement.

On June 11, 1979, the city of Anchorage approved temporary occupational disability benefits for Take. After a physician's examination revealed that Take's heart condition prevented him from performing the duties of a fire fighter, particularly without medication or a permanent pacemaker, the municipality approved his permanent disability retirement benefits. Take received retirement benefits of $15,385.04 during 1979 and $24,669 in 1980. Neither payment was reported as income on the joint returns filed in 1979 and 1980.

The Commissioner determined deficiencies of $7,481.17 for 1979 and $8,194 for 1980. The Commissioner also determined that the Takes owed almost $800 in addition to their taxes under I.R.C. Sec. 6653(a) for negligence in filing their 1979 and 1980 returns.

Take sought review in the Tax Court. He moved for summary judgment on the ground that the occupational disability benefits he received were excludable from income under I.R.C. Sec. 104(a)(1) as amounts received under a workmen's compensation act. The Commissioner opposed Take's motion, and also sought summary judgment, contending that the ordinance under which the benefits were received was not a workmen's compensation statute within the meaning of section 104(a)(1).

The Tax Court denied both motions for summary judgment. Take v. Commissioner, 82 T.C. 630 (1984). Its most significant holding was that amounts received under section 2 of the Anchorage ordinance could not be excluded from income under I.R.C. Sec. 104(a)(1). According to the Tax Court, an ordinance that makes no distinction between occupational diseases and ordinary diseases of life is not "in the nature of a workmen's compensation act" as that term is used for the purposes of the exemption under section 104(a)(1) of the Internal Revenue Code. Take, 82 T.C. at 636. Section 2 of the Anchorage ordinance establishes an irrebuttable presumption that heart, lung, and respiratory illnesses are occupationally related even though "risk [of such illnesses] has not been considered sufficiently distinguished from the risk of such disease in the population as a whole to justify an irrebuttable presumption of occupational causation." Id. The Tax Court did not find that a statute containing an irrebuttable presumption establishing occupational causation could never qualify under section 104(a)(1), but only required a "more definitive relationship between the occupation and the injury or sickness" than the connection drawn by section 2 of the Anchorage ordinance. Id. at 636 n. 14.

The Tax Court denied the Commissioner's motion for summary judgment because there was a factual issue in the case. The issue was whether Take had received his benefits under section 1 of the ordinance, which qualified for the exclusion under I.R.C. Sec. 104(a)(1) because it required proof of occupational causation, or under section 2, which did not meet that standard. The Tax Court later held that Take had failed to satisfy his burden of proof as to the statutory origin of his benefits, and decided the issue in favor of the Commissioner. Take v. Commissioner, 85 T.C.M. (P-H) 1717, 1719 (1985). Take's disability retirement benefits were held not to be excludable from income. The Tax Court refused, however, to sustain the additions to tax for negligence because it found that Take "could reasonably have believed that the benefits were excludable." Id.

Take contends that the Tax Court erred in failing to credit the presumption of occupational causation enacted in the Anchorage ordinance. He argues that the enactment of irrebuttable presumptions in occupational disability statutes does not alter the status of such laws as "in the nature of workmen's compensation acts." It is said the presumption eliminates problems of proof and distributes compensation more efficiently to people who have, for the most part, suffered work-related injuries. The Tax Court's decision, Take claims, was the type of medical judgment that the enactment of presumptions is designed to avoid. These contentions relate to the Tax Court's initial denial of summary judgment. The only challenge asserted to the Tax Court's second decision granting judgment in favor of the Commissioner is that the Tax Court should have permitted Take to show that his injury was in fact work-related.

We treat the Tax Court's decision that section 2 of the Anchorage ordinance was not a statute "in the nature of a workmen's compensation act" as a ruling of law subject to de novo review. See Sennett v. Commissioner, 752 F.2d 428, 430 (9th Cir.1985) (reviewing construction of statute on stipulated facts as question of law); Rutter v. Commissioner, 760 F.2d 466, 468 (2d Cir.) (per curiam) (reviewing as issue of law lower court's determination of local statute's status under section 104), cert. denied, --- U.S. ----, 106 S.Ct. 141, 88 L.Ed.2d 116 (1985). We note, however, that the Commissioner has latitude in the interpretation of the Internal Revenue Code, see Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S. 837, 844-45, 104 S.Ct. 2778, 2782-83, 81 L.Ed.2d 694 (1984) (requiring deference to agency's construction of statute it has been entrusted to administer), and that the Tax Court's opinions bearing on the Internal Revenue Code are entitled to respect because of its special expertise in the field. Magneson v. Commissioner, 753 F.2d 1490, 1493 (9th Cir.1985).

The Internal Revenue Code provides for the exclusion from income of certain payments received as "compensation for injuries or sickness." I.R.C. Sec. 104. Payments will qualify for the exclusion under section 104 if deemed "amounts received under workmen's compensation acts as compensation for personal injuries or sickness." I.R.C. Sec. 104(a)(1). The Commissioner's regulations interpret this section also to exclude amounts paid "under a statute in the nature of a workmen's compensation act which provides compensation to employees for personal injuries or sickness incurred in the course of employment." Treas.Reg. Sec. 1.104-1(b) (1960).

The Code also provides for exclusion from income of certain "amounts received under accident and health plans." I.R.C. Sec. 105. At all times relevant to this litigation, section 105 provided for the exclusion from income of occupational...