Tax Court In Brief | Servance v. Comm'r | Tier 1 Railroad Retirement Benefits, Claim-of-Right Doctrine, Rescission Doctrine

Published date14 December 2022
Subject MatterEmployment and HR, Tax, Retirement, Superannuation & Pensions, Employee Benefits & Compensation, Income Tax, Tax Authorities
Law FirmFreeman Law
AuthorFreeman Law

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.

For a link to our podcast covering the Tax Court in Brief, download here or check out other episodes of The Freeman Law Project.

Tax Litigation:The Week of November 21st, 2022, through November 25th, 2022

  • Tillman-Kelly v. Comm'r, T.C. Memo 2022-111 | November 21, 2022 | Urda, J. | Dkt. No 6127-20

Servance v. Comm'r, T.C. Summary Opinion 2022-23 | November 21, 2022 |Copeland, J.| Dkt. No. 1587-18S (Tier 1 Railroad Retirement Benefits; Claim-of-Right Doctrine; Rescission Doctrine)

Summary: In 2012, Elijah Servance retired from the Metro-North Railroad. Mr. Servance applied for long-term disability benefits from the U.S. Railroad Retirement Board (RRB), and his application was granted in December 2012. During 2015 the RRB paid Mr. Servance tier 1 railroad retirement benefits and reported these benefits on Form SSA-1099, Social Security Benefit Statement, issued to Mr. Servance. The Servances (Elijah and Corliss) did not report the tier 1 railroad retirement benefits on their joint 2015 federal income tax return. Mr. Servance was eligible for benefits under a long-term disability insurance policy. Premiums were paid by Metro-North. The Servances did not report receipt of any Hartford Life Insurance (Hartford) long-term disability payments on their 2015 federal tax return. The IRS compared the Servances' 2015 federal income tax return to the third-party reports it received and, on the basis of these comparisons, issued a notice of deficiency to the Servances.

Key Issue: Whether the Servances' gross income includes unreported tier 1 railroad retirement benefits paid to Servance during 2015? Whether the Servances' gross income includes unreported long-term disability payments of purportedly made by Hartford during 2015?

Primary Holdings: The Servances are not entitled to exclude Mr. Servance's tier 1 railroad retirement benefits from gross income (other than the 15% excluded by 26 U.S.C. ' 86). As for the Hartford LTD payments, the IRS failed to meet a threshold burden of demonstrating that the Servances actually received any taxable income from Hartford in 2015, and the Servances showed that they did not have any such accretion to wealth.

Key Points of Law: Pursuant to 26 U.S.C. ' 7463(b), this decision is not reviewable by any other court, and the opinion shall not be treated as precedent for any other case.

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