Tax Court In Brief | Caldwell v. Commissioner | Employer Disability Compensation Is Taxable Income To Employee

• Published date: 24 May 2022
• Subject Matter: Employment and HR, Litigation, Mediation & Arbitration, Tax, Discrimination, Disability & Sexual Harassment, Personal Injury, Income Tax
• Law Firm: Freeman Law
• Author: Freeman Law

The Tax Court in Brief - May 16th - May 20th, 2022

Freeman Law's "The Tax Court in Brief" covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

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Tax Litigation:The Week of May 16th, 2022, through May 20th, 2022

• Ibrahim v. Commissioner, TC Summary Opin. 2022-7| May 16, 2022 | Weiler, J. | Dkt. No. 10750-20S

Caldwell v. Comm'r, T.C. Memo 2022-51 | May 20, 2022 | Lauber, J. | Dkt. No. 3333-19.

Opinion

Short Summary: Paul Caldwell worked for Sprint Nextel as an account executive. His monthly income was $10,275. Through his employer he enrolled in two disability programs: the "Core Plan" and the "Buy-Up Plan". These plans provided payment in the event Caldwell was unable to perform the material duties of his employment due to injury or sickness. The Core Plan provided 50% of his monthly income. Sprint paid all premiums under the Core Plan without any contribution from Caldwell. Caldwell paid for the Buy-Up Plan with pre-tax payroll deductions from his Sprint wages. The benefit paid 15% of his monthly salary. After suffering a knee injury, Caldwell applied for his benefits. In 2011 Caldwell received $61,187.62 and $27,204.07 under the Core Plan and Buy-Up Plan, respectively. Caldwell did not file a return for 2011. Through a substitute for return (SFR), the IRS determined that these payments were includible in Caldwell's gross income. After taking the standard deduction and allowing one personal exemption, the IRS claimed his taxable income was $101,286 with a tax liability of $21,977.

Key Issues:

• Is Caldwell required to include in gross income the benefits he received from his disability plans?
• Is Caldwell liable for additions to tax for failure to file and pay?

Primary Holdings:

• Caldwell had to include in gross income the disability benefits he received because the plans were paid with pre-tax dollars instead of post-tax dollars. Thus, the $88,391 received from his disability plans were properly included by the IRS.
• The court determined Caldwell liable for additions to tax for failure to file and pay because he did not present credible testimony nor evidence for his failure to file. Moreover, he presented no evidence or testimony on his failure to pay Therefore, the court determined he was liable for addition to tax assessments.

Key Points of Law:

• Burden of Proof: The...