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PURSUANT TO INTERNAL REVENUE CODE
SECTION 7463(b),THIS OPINION MAY NOT BE TREATED AS PRECEDENT FOR ANY
OTHER CASE.
T.C.
Summary Opinion 2003-33
UNITED
STATES TAX COURT
HILARIO
M. AGUIRRE AND CATHY C. AGUIRRE, Petitioners v. COMMISSIONER OF INTERNAL
REVENUE, Respondent Docket
No. 7837-01S. Filed April 2, 2003.
Hilario
M. Aguirre and Cathy C. Aguirre, pro sese.
David
B. Mora, for respondent.
CARLUZZO,
Special Trial Judge: This case was heard pursuant
to the provisions of section 7463 of the Internal Revenue Code in effect
at the time the petition was filed. Subsequent section references are to
the Internal Revenue Code in effect for 1998. The decision to be entered
is not reviewable by any other court, and this opinion should not be cited
as authority.
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Respondent
determined a deficiency of $1,073 in petitioners’ 1998
Federal income tax. The issue for decision is whether
petitioners
must include in income certain amounts paid to Hilario M. Aguirre in 1998
as a result of a back injury sustained
in
the previous year.
Background
Some
of the facts have been stipulated and are so found. Petitioners are
husband and wife. They filed a timely 1998 joint
Federal
income tax return. At the time the petition was filed,
they resided in Richmond, Texas. References to petitioner are to Hilario
M. Aguirre.
At
all relevant times, petitioner was employed by Anheuser
Busch,
Inc. (Anheuser). In 1997, petitioner
injured his back and filed a claim for worker’s compensation benefits.
At first his claim was disputed, but ultimately, in 1998, petitioner was
awarded
worker’s compensation benefits totaling $15,852.29 of which, for reasons
explained below, only approximately $9,000 was paid directly to him.
During
the period in which petitioner’s worker’s
compensation claim was under consideration, he entered into an
agreement with Anheuser (the agreement)
whereby he was entitled to receive certain benefits upon the condition
that any amount he received pursuant to the agreement would be repaid from
any worker’s compensation award that he might subsequently receive.
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Pursuant
to the agreement, from February 2 through May 19, 1998,
petitioner
received payments totaling $7,050 (the payments). The
payments were reported on a Form W-2, Wage and Tax Statement, issued
to petitioner by the General American Life Insurance Company,
the third-party administrator for Anheuser’s
self - insured,
group indemnity plan. Petitioner did not contribute to the
cost of this plan, and contributions made to this plan on his behalf
were not included in his income for any period.
Petitioners
did not include the payments in the income
reported
on their 1998 return. In the notice of deficiency, respondent
determined that the payments must be included in petitioners’
1998 income. Other adjustments made in the notice of
deficiency are not in dispute.
Discussion
According
to respondent, the payments constitute income.
Section
61(a) defines gross income as “all income from
whatever
source derived”. Income is defined as “undeniable accessions
to wealth” clearly realized by a taxpayer over which the
taxpayer has “complete dominion”. Commissioner v. Glenshaw Glass
Co., 348 U.S. 426, 431 (1955). Whether a taxpayer enjoys “complete
dominion” over an “accession to wealth” depends upon
“whether
the taxpayer has some guarantee that * * * [the taxpayer]
will be allowed to keep the money”. Commissioner v.
Indianapolis
Power & Light Co., 493 U.S. 203, 210 (1990).
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Sec.
105(a) states:
Except
as otherwise provided in this section, amounts
received by an employee through accident or
health
insurance for personal injuries or
sickness
shall
be included in gross income to the extent such
amounts
(1) are attributable to contributions by the employer
which were not includible in the gross income
of
the employee, or (2) are paid by the employer.
Relying
specifically upon section 105(a),
1
see
also sec.
104(a)(3),
respondent takes the position that the payments are
includable
in petitioners’ income because (1) they are
attributable
to contributions made by his employer and not
includable
in his income, or (2) they were paid by his employer.
As
noted, during 1998, petitioner was awarded worker’s
compensation
benefits totaling $15,852.29 as a result of the back
injury
he sustained in the previous year. Worker’s compensation benefits
are excludable from income, see sec. 104(a)(1), and
there
is no dispute on that point in this case. However, only a portion
of petitioner’s worker’s compensation award was paid
directly
to petitioner. In accordance with the agreement, the remainder
was used to reimburse Anheuser for the
payments.
Absent
circumstances such as those that exist in this case,
an
amount described in section 105(a) constitutes income to the
recipient/taxpayer
because the amount constitutes an accession to
the
recipient/taxpayer’s wealth. In this case, although the
payments
might be generally of the type contemplated by section
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105(a),
the agreement effectively prevents any accretion to
petitioner’s
wealth attributable to the payments. See Commissioner
v. Glenshaw Glass Co., supra. Consequently, the payments
received by petitioner during 1998 are not income to petitioner
and therefore are not includable in petitioners’
income
for that year.
Reviewed
and adopted as the report of the Small Tax Case Division.
To
reflect the foregoing,
Decision
will be entered
for
petitioners.
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