T.C. Memo. 2000-281



                     UNITED STATES TAX COURT



         JOHN M. AND NORMA A. MIKALONIS, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 1060-99, 11599-99.          Filed August 31, 2000.


     Harry C. Citrino, Jr., for petitioners.

     Joellyn R. Cattell, for respondent.



                       MEMORANDUM OPINION

     DEAN, Special Trial Judge:   Respondent determined

deficiencies of $2,632 and $2,260 in petitioners’ 1996 and 1997

Federal income taxes, respectively.   The issue for decision is

whether Social Security benefits received by petitioner John M.

Mikalonis (petitioner) in 1996 and 1997 include the worker’s

compensation payments he received from a private insurer in each

year.
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     The facts have been fully stipulated and are so found.      All

section references are to the Internal Revenue Code in effect for

the years at issue, and Rule references are to the Tax Court

Rules of Practice and Procedure.    Petitioners resided in

Philadelphia, Pennsylvania, at the time their petition was filed.

                             Background

     Petitioner received worker’s compensation payments during

1996 and 1997 from a private insurer.     Petitioners filed jointly

Forms 1040, U.S. Individual Income Tax Returns, for both years.

On their 1996 return, petitioners reported adjusted gross income

of $60,316.    They reported Social Security benefits received of

$2,083 and treated $1,771 of that amount as taxable.    Petitioners

did not report worker’s compensation benefits on their 1996

return.

     Petitioner’s 1996 Form SSA-1099, Social Security Benefit

Statement, reports that petitioner received net benefits of

$37,548.1    The net benefits include payments made in 1996 of

$12,013 for 1994, $12,604 for 1995, and $12,932 for 1996.    The

payments were reported as consisting of:    (1) $1,743 paid by

check or direct deposit; (2) $340 in medicare premiums paid for

petitioner; (3) $34,967 in worker’s compensation offset; and (4)

$498 in attorney's fees and SSI offset.




     1
          All numbers have been rounded to the nearest dollar.
                               - 3 -

     Petitioners reported on their 1997 Form 1040, U.S.

Individual Income Tax Return, adjusted gross income of $50,338.

Petitioners did not report worker’s compensation payments, but

they did report Social Security benefits received of $2,152 and

treated $1,829 of that amount as taxable.

     Petitioner’s 1997 Form SSA-1099 reports that petitioner

received net benefits of $13,309 for 1997.    The net benefits

received were reported as consisting of:    (1) $1,626 paid by

check or direct deposit; (2) $526 in medicare premiums paid for

petitioner; and (3) $11,656 in worker’s compensation offset.     Of

these amounts $498 is nontaxable payments.

     Respondent determined that the worker’s compensation offsets

reported on petitioner’s Forms SSA-1099 for taxable years 1996

and 1997 must be included in his Social Security benefits

received.2   The deficiency at issue results from the




     2
        Respondent also determined that the $498 reported as
attorney's fees and SSI offset on petitioners’ 1996 Form SSA-
1099, which petitioners failed to report on their 1996 Federal
income tax return, are Social Security benefits received by
petitioner. It is not clear whether any of this amount is for
1996 or whether it is attributable to the 2 earlier years for
which benefits were paid in 1996. Although petitioners contested
in their petition the entire deficiency determined by respondent,
they made no stipulations or argument on brief regarding this
amount. We thus deem them to have conceded this issue. See
Rybak v. Commissioner, 

, 566 n.19 (1988); Zimmerman v.
Commissioner, 

, 104 n.7 (1976).
                                  - 4 -

corresponding increase in petitioners’ adjusted gross income.3

     Petitioners contend that the Social Security benefits

reported on the Forms SSA-1099 as “worker’s compensation offset”

should not be included as part of petitioner’s Social Security

benefits.    They argue that there was no “offset” but merely a

“nonpayment” because neither petitioner nor the insurance company

that paid the worker’s compensation benefit to petitioner

received payments of the amounts reported from the Social

Security Administration.

                                Discussion

     Gross income includes “all income from whatever source

derived”, unless specifically excluded.      Sec. 61(a).   Generally,

gross income does not include “amounts received under workmen’s

compensation acts as compensation for personal injuries or

sickness.”    Sec. 104(a)(1).    Social Security benefits, however,

are included in gross income as provided by section 86.

     Married taxpayers filing a joint return whose modified

adjusted gross income plus one-half of their Social Security


     3
        The increase in petitioners’ adjusted gross income in
1996 resulted in a computational adjustment to petitioners’
itemized deductions. Petitioners appear to dispute this
adjustment, alleging in their petition that respondent erred in
disallowing certain expenses and deductions. Petitioners,
however, have presented no evidence or argument regarding this
issue, and we thus deem them to have conceded it. See Rybak v.

; Zimmerman v. 

. Our
determination of the Social Security issue will resolve the
computational adjustment.
                                - 5 -

benefits exceeds $44,000 must include up to a maximum of 85

percent of their Social Security benefits in their gross income.

See sec. 86(a), (b), and (c).

     Respondent determined that 85 percent of the Social Security

benefits petitioner received for 1996 and 85 percent of the

benefits he received for 1997 are includable in his gross income

for each respective tax year.   Petitioners do not dispute that 85

percent of the Social Security benefits petitioner received for

each year is taxable, nor do they dispute that petitioner

received worker’s compensation benefits from a private insurer in

the amounts by which his Social Security benefits were offset.

Petitioners, however, argue that the Social Security

Administration never paid the benefits reported as worker’s

compensation offset, and thus those amounts should not be

included in petitioners’ gross income.

     Section 86(d)(3) clearly provides that such offsets are

Social Security benefits for purposes of determining gross

income;

     if * * * any social security benefit is reduced by
     reason of the receipt of a benefit under a workmen’s
     compensation act, the term “social security benefit”
     includes that portion of such benefit received under
     the workmen’s compensation act which equals such
     reduction.

     Section 86 was added to the Internal Revenue Code by the

Social Security Amendments Act of 1983, Pub. L. 98-21, sec. 121,

97 Stat. 80.   The House report states in relevant part:
                               - 6 -

     social security benefits potentially subject to tax
     will include any workmen’s compensation whose receipt
     caused a reduction in social security disability
     benefits. For example, if an individual were entitled
     to $10,000 of social security disability benefits but
     received only $6,000 because of the receipt of $4,000
     of workmen’s compensation benefits, then for purposes
     of the provisions taxing social security benefits, the
     individual will be considered to have received $10,000
     of social security benefits. [H. Rept. 98-25, at 26
     (1983), 1983 U.S.C.C.A.N. 219, 244.]

     Petitioners argue that section 86(d)(3) “does not call for

offsets to be considered taxable income.”   They contend that the

legislative intent of the statute is “to tax the Social Security

benefits which were to be paid in place of the workers’

compensation benefits once workers’ compensation benefits were

terminated”.

     Petitioners’ interpretation of the statute is without merit.

The language of section 86(d)(3) is unambiguous.   Neither the

clear language of the statute nor the explanation in the

legislative history conceives that an actual payment from the

Social Security Administration is required in order to have an

offset.   The provisions of the statute apply to worker’s

compensation benefits paid from a private insurer.   See Willis v.

Commissioner, T.C. Memo. 1997-290.

      Accordingly, we uphold respondent’s determination that

petitioner’s Social Security benefits for 1996 and 1997 include

those amounts reported on his Forms SSA-1099 as attributable to

those years.
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     On brief, petitioners request that they either be permitted

to elect the limitation provisions of section 86(e) for the lump-

sum benefits paid in 1996 or that they be permitted to refund the

amounts actually paid to them by the Social Security

Administration.   The election provisions of section 86(e), even

if petitioners were able to perfect such an election, would do

nothing to limit petitioners’ tax liability.   Respondent’s

determination of the deficiency in petitioners’ 1996 tax year

resulted from the inclusion of only $12,932 of Social Security

benefits, which are the benefits reported as attributable to

1996.

     Petitioners’ alternative request likewise affords them no

relief.   Taxpayers reporting income on the cash method of

accounting, such as petitioners, must include an item in income

for the taxable year in which the item is actually or

constructively received.   See sec. 451(a).   Petitioners may not

retroactively erase the receipt of income in 1996 and 1997 by

refunding it in a subsequent tax year.   See Simon v.

Commissioner, 

, 231-232 (1948); see also Commissioner

v. Gaddy, 

(5th Cir. 1965), affg. in part and

remanding in part 

(1962); Florida Progress Corp. &

Subs. v. Commissioner, 

, 598 (2000)(discussing claim

of right doctrine).   We thus confine our consideration of

petitioners’ tax liability to the specific facts presented.
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To reflect the foregoing,

                                         Decisions will be entered

                                    for respondent.