The opinion
T.C. Memo. 1996-463
UNITED STATES TAX COURT
KIRK A. AND IDA R. CRANDALL, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8220-94. Filed October 15, 1996.
Kirk A. and Ida R. Crandall, pro sese.
Yolanda R. Garcia and Franklin R. Hise, for respondent.
MEMORANDUM OPINION
WOLFE, Special Trial Judge: This case was heard pursuant to
the provisions of section 7443A(b)(3) and Rules 180, 181, and
182. All section references are to the Internal Revenue Code in
effect for the taxable year in issue, unless otherwise indicated.
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All Rule references are to the Tax Court Rules of Practice and
Procedure.
Respondent determined a deficiency in petitioners' 1991
Federal income tax in the amount of $999. The sole issue for
decision is whether payments received by petitioner Kirk A.
Crandall in 1991 from the Kodak Welfare Benefit Plan Trust are
includable as gross income on petitioners' 1991 Federal income
tax return.
Some of the facts have been stipulated and are so found.
The stipulated facts and attached exhibits are incorporated by
this reference. Petitioners resided in Datil, New Mexico, when
their petition was filed.
On September 1, 1985, petitioner Kirk A. Crandall (Mr.
Crandall) began employment with the Eastman Kodak Company (Kodak)
as a service representative. Approximately 13 months later Mr.
Crandall became disabled. The last date on which he worked at
Kodak was October 17, 1986. In March 1987, Mr. Crandall filed an
application for benefits under the Kodak Long Term Disability
(LTD) Plan (sometimes hereinafter referred to as "the Plan").
His coverage under the Plan became effective March 31, 1987. A
subsequent, lump sum settlement of a disputed worker's
compensation claim filed by Mr. Crandall did not adversely affect
his eligibility for benefits under the Plan.
During 1991, Mr. Crandall received payments from the Kodak
Welfare Benefit Trust in the amount of $5,491.52. Petitioners
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did not include that amount in income on their joint 1991 Federal
income tax return. Mr. Crandall's 1991 Form W-2, Wage and Tax
Statement, issued by the Kodak Welfare Benefit Trust, reported
the amount of $5,491.52 in separate boxes, alternatively entitled
"Wages, tips, other compensation" and "Disability Benefits (Sick
Pay) Included in Wages", and also in the box for "Total Benefits
Paid". Nothing was withheld or excluded from Mr. Crandall's 1991
benefits. On their 1991 return, Mr. Crandall reported as his
occupation "Disabled", and petitioner Ida Crandall reported as
her occupation "Teacher".
Petitioners contend that the payments they received in 1991
from the Kodak Welfare Benefit Trust are excludable from gross
income because the total amount received was not attributable to
employer contributions that were not includable in petitioners'
gross income.
Respondent determined that the payments Mr. Crandall
received must be included in petitioners' 1991 gross income
because the Kodak Long Term Disability Plan was funded solely by
employer contributions. Respondent's determinations as to
petitioners' tax liability are presumed correct, and petitioners
have the burden of proving otherwise. Rule 142(a).
Section 105 provides that, in general, amounts received by
an employee, through an accident or health plan for employees,
for personal injuries or sickness must be included in gross
income to the extent such amounts (1) are attributable to
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contributions by the employer that were not includable in the
gross income of the employee, or (2) are paid by the employer.
Sec. 105(a), (e).
Documents stipulated by the parties in this case establish
that the payments received by Mr. Crandall from the Kodak Welfare
Benefit Trust were made under the Kodak Long Term Disability
(LTD) Plan, and that Kodak funded the Kodak Welfare Benefit Trust
without any contributions from employees.
The parties stipulated into the record a copy of select
portions of an undated employee handbook (hereinafter "the
employee handbook"), in addition to a copy of applicable portions
of an undated booklet issued by Kodak that explained the Kodak
LTD Plan (sometimes hereinafter referred to as "Kodak's Long Term
Disability booklet" or "the booklet"). The copied material had
been provided to respondent in 1995 by Nick Laino, a manager in
the Disability Management Services unit of the Metropolitan Life
Insurance Company (MetLife). At the time, MetLife was
responsible for reviewing claims under the Plan and assisting
Kodak in general planning.
The employee handbook states: "The plan is known as the
Kodak Long Term Disability (LTD) Plan and is sponsored and
maintained on an uninsured basis by Eastman Kodak Company". It
states further:
The Kodak Welfare Benefit Plan Trust with Citibank,
N.A., as trustee, has been established to accumulate
assets of the plan and to provide funds for benefit
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payments. The assets of the fund held by the trustee
may not be used for any purpose other than for the
exclusive benefit of persons entitled to benefits under
the plan * * *.
The booklet states that the Kodak "LTD Plan is paid for entirely
by the company. There is no cost to employees." From the record
in this case, we conclude that the payments received by Mr.
Crandall during 1991 from the Kodak Welfare Benefit Trust were
benefits under the Kodak LTD Plan, and that such payments were
attributable exclusively to contributions by Kodak.
In support of their contention that the payments at issue
were not attributable to employer contributions, petitioners
submitted into the record a copy of a Summary Annual Report
issued by Kodak for 1991. With respect to the Kodak LTD Plan,
the Summary Annual Report states that "During the plan year, the
plan had total income of $13,853,115 including employer
contributions of $927,838 and realized net investment gains of
$12,925,277." Petitioners conclude from this statement that
93.31 percent of the Plan income was from employee contributions
or assets. We disagree with petitioners' interpretation. The
quoted statement does not classify the $12,925,277 as employee
contributions or assets, but defines that amount as "realized net
investment gains". Moreover, petitioners' interpretation is
inconsistent with the statement in Kodak's Long Term Disability
booklet stating that the "Plan is paid for entirely by the
company. There is no cost to employees."
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Petitioners also maintain that Mr. Crandall's payroll stubs
from Kodak evidence employee contributions to the Plan. Copies
of a sampling of Mr. Crandall's payroll stubs issued by Kodak
during his period of active employment show that 60 cents was
deducted from his weekly earnings for "Disability." However, the
employee handbook indicates that the weekly deductions of 60
cents from Mr. Crandall's earnings were for Kodak's short-term
Sickness Allowance Plan, not the Kodak LTD Plan. According to
the employee handbook, the Kodak Sickness Allowance Plan (KSAP)
is a short-term benefits plan covering all employees. For
employees with less than 15 years of service, such as Mr.
Crandall, the KSAP provides continuation of an employee's full
base pay for a period of 26 weeks while the employee is unable to
work because of sickness, injury, or disability.1 The employee
handbook states that "Kodak pays for the cost of the plan [KSAP],
however, during [an employee's] first three years of coverage,
[the employee] contribute[s] 60 cents per week through payroll
deduction." The corporate documents available to us demonstrate
that the 60-cent payroll deductions that Mr. Crandall incurred,
until he became disabled in October 1986, were for the short term
coverage. Stipulated correspondence demonstrates that such was
the administrative construction of the plan.
1
Mr. Crandall's long term disability benefits began
approximately 23 weeks after the last date he worked at Kodak.
(Oct. 17, 1986 to Mar. 31, 1987 = 165 days or 23.57 weeks).
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We hold the following circumstances dispositive. During
1991, Mr. Crandall received payments from the Kodak Welfare
Benefit Trust totaling $5,491.52. Payments from the Kodak
Welfare Benefit Trust are made exclusively to satisfy obligations
under the Kodak LTD Plan. Kodak's Long Term Disability booklet
states that the Plan is paid for entirely by Kodak and that there
is no cost to employees. The deductions of 60 cents from Mr.
Crandall's weekly earnings were for Kodak's Sickness Allowance
Plan, not the Kodak LTD Plan. Petitioners did not argue, nor
does the record show, that Kodak's contributions to the Plan were
included in Mr. Crandall's gross income, or that the payments he
received qualify under the exception provided for under section
105(c).2
Under the circumstances of this case, sections 61 and 105
clearly require petitioners to include in income for Federal
income tax purposes the disability payments that Mr. Crandall
received during 1991.
Decision will be entered
for respondent.
2
Both the employee handbook and the booklet state that
payments under the Plan are calculated as a percentage of the
employee's base wage or annual salary rate, less certain other
benefits.