The opinion
T.C. Memo. 2000-306
UNITED STATES TAX COURT
PATRICIA L. BALDWIN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 4471-99. Filed September 27, 2000.
Carolyn J. Jackson, for petitioner.
Jennifer L. Nuding, for respondent.
MEMORANDUM OPINION
GOLDBERG, Special Trial Judge: Respondent determined
deficiencies in petitioner’s Federal income taxes and additions
to tax in the following amounts for the following taxable years:
Additions to Tax
Year Deficiency Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6654(a)
1994 $4,549 $1,023.52 $1,023.52 $234.38
1995 2,869 645.52 473.38 156.62
1996 3,344 752.40 351.12 180.06
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Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the years in issue, and all
Rule references are to the Tax Court Rules of Practice and
Procedure.
After concessions by the parties,1 the sole issue for
decision is whether payments petitioner received for nursing and
attendant care services she provided to her permanently disabled
husband must be included in petitioner’s gross income for the
1994, 1995, and 1996 taxable years.
This case was submitted fully stipulated pursuant to Rule
122. The stipulation of facts and the attached exhibits are
1
Petitioner concedes that she received the following
amounts which are includable in gross income for 1994: (1)
Gambling winnings of $3,700; (2) patronage dividends of $1,026;
and (3) pensions/annuities of $1,266. Petitioner also concedes
that she received the following amounts which are includable in
gross income for 1995: (1) Patronage dividends of $320; and (2)
pensions/annuities of $504.
Respondent makes the following concessions: (1) That only
$1,266 of the $2,532 petitioner received from the Social Security
Administration is includable in gross income for 1994; (2) for
the 1995 taxable year, that petitioner is not required to include
in gross income $300 of the payments reported as paid to
petitioner by Healthcare Corp. and that only $504 of the $1,968
petitioner received from the Social Security Administration is
includable in gross income; (3) that petitioner and Mr. Baldwin
were married during the years in issue and are therefore entitled
to married, filing jointly status for the 1994, 1995, and 1996
taxable years; (4) that petitioner’s son, Floyd, was a dependent
of petitioner and Mr. Baldwin during the 1994 and 1995 taxable
years and that petitioner’s children, Emma and Sam, were
dependents of petitioner and Mr. Baldwin during the 1994, 1995,
and 1996 taxable years; and (5) that petitioner is not liable for
the additions to tax pursuant to secs. 6651(a)(1), (2), and
6654(a).
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incorporated herein by this reference. At the time of filing the
petition, petitioner resided in Remus, Michigan.
Petitioner has been married to Tony L. Baldwin (Mr. Baldwin)
for more than 30 years, including the years in issue. They have
7 children from their marriage. Mr. Baldwin has been an employee
of General Motors Company, Buick Division (GM) since 1965,
working for the first 10-1/2 years in GM’s foundry without
difficulty. It was not until after automation eliminated his
permanent position, requiring Mr. Baldwin to move from job
assignment to job assignment, that Mr. Baldwin began to
experience emotional problems. These emotional problems
progressively worsened through late 1975 to early 1976.
Beginning in 1976, Mr. Baldwin sought medical and psychiatric
help from various doctors and hospitals. Throughout 1976 to
1979, Mr. Baldwin took medical leave from his position at GM,
ranging from a few weeks to a few months at a time. In late
1976, Mr. Baldwin was diagnosed with paranoid schizophrenia by
his attending physician. Mr. Baldwin retired from GM on total
and permanent disability on June 1, 1979.
On August 27, 1980, Mr. Baldwin filed a claim for worker’s
compensation benefits against GM for work-related injuries and
for total and permanent disability on a psychiatric basis. Mr.
Baldwin filed an amended claim on October 21, 1980. Both claims
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were denied by an administrative law judge, and Mr. Baldwin
appealed the decision.
On April 14, 1987, the Worker’s Compensation Appeals Board
(Appeals Board) reversed the decision of the administrative law
judge and found that Mr. Baldwin suffered from a work-related
disability and was totally and permanently disabled because of a
mental incapacity resulting from his employment with GM. The
Appeals Board determined Mr. Baldwin’s date of injury was June 7,
1978. Consequently, the Appeals Board ordered that Mr. Baldwin
receive compensation from October 27, 1978, pursuant to the
Michigan Worker’s Disability Compensation Act, Mich. Comp. Laws
section 418.315(1) (1985) (Michigan Act). The Appeals Board
decision did not address attendant care expenses.
During the beginning of Mr. Baldwin’s emotional and mental
problems, petitioner worked part-time but for no appreciable
period of time. Beginning in 1980 and continuing through the
years in issue, petitioner provided attendant and nursing care
for Mr. Baldwin, which required more of her time as his symptoms
worsened. Though petitioner is neither a registered nor a
licensed practical nurse, she was able to care for Mr. Baldwin
by: (1) Administering medication; (2) watching for early warning
signs of paranoia, depression, or behavioral changes; (3)
monitoring his sleep patterns; (4) ensuring that he did not drink
alcoholic beverages; (5) taking him to the doctor; and (6)
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generally following the directions of Mr. Baldwin’s doctors and
nurses. Petitioner also took care of their 7 children and
managed their small farm when she was not attending to her
husband’s medical needs.
On May 3, 1988, Mr. Baldwin made a written claim for
expenses relating to nursing and attendant care provided by
petitioner from 1980 onward pursuant to the Michigan Act. In
December of 1989, a magistrate of the Michigan Bureau of Worker’s
Disability Compensation found that petitioner provided attendant
and nursing care to Mr. Baldwin as defined under the Michigan Act
and awarded petitioner reimbursement for services rendered. The
magistrate’s award provided that petitioner was entitled to be
reimbursed in an amount equal to $8 per hour for 12 hours a day
and $12 an hour for hours in excess of 40 hours per week.2 The
magistrate estimated that petitioner spent 12 hours per day
providing care for Mr. Baldwin and held that the hourly rates and
number of hours per week shall be payable until further notice.
Both Mr. Baldwin and GM appealed the decision.
The Worker’s Compensation Appellate Commissioner of the
State of Michigan (Appellate Commissioner), upheld the
magistrate’s decision except that the Appellate Commissioner
2
For care provided after July 30, 1985, petitioner’s
reimbursable time was limited to 56 hours per week. Mich. Comp.
Laws section 418.315(1) (1985).
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modified the date on which payment for attendant and nursing care
services would begin and held that petitioner would receive
payment for services rendered from September 19, 1981, and not
from 1980 as ordered by the magistrate.3
During the years in issue, petitioner received attendant and
nursing care payments at a rate of $2,218.67 per month from GM’s
insurance carrier, Healthcare Compare Corporation4 (Healthcare)
for a total of $26,624, $24,405,5 and $28,842 during 1994, 1995,
and 1996, respectively, pursuant to the Appellate Commissioner’s
order. During 1994, 1995, and 1996, petitioner received 12
payments, 11 payments, and 13 payments, respectively. All
payments received from Healthcare were made payable to petitioner
solely in her name.
In 1995, Healthcare began reporting the payments it made to
petitioner to the Internal Revenue Service (IRS) as “medical
payments” by issuing Form 1099 to petitioner. According to
petitioner, Healthcare’s reports to the IRS were inconsistent
with previous representations made by Healthcare’s predecessor
3
Baldwin v. GMC, 5 MIWCLR par. 1014 (Mich. Workers’
Comp. App. Commn., 1992).
4
Healthcare Compare Corp. is currently named First
Health.
5
Though the notice of deficiency for 1995 states that
Healthcare reported to the Internal Revenue Service payments to
petitioner of $24,705 for the 1995 taxable year, the parties
stipulated that petitioner received payments from Healthcare in
the amount of $24,405 in 1995.
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corporation which allegedly told her that the attendant and
nursing care payments were not includable in petitioner’s gross
income and did not require the issuance of a Form 1099.
In separate notices of deficiency for the 1994, 1995, and
1996 taxable years, respondent determined that the payments
petitioner received from Healthcare were properly includable in
petitioner’s gross income. Petitioner did not file her Federal
income tax returns for each year in issue prior to the mailing of
the notice of deficiency for the specific year.
It is petitioner’s contention that the payments from
Healthcare are excludable from her gross income because it is
considered compensation for personal injuries, as permitted under
section 104(a)(1). In the alternative, petitioner argues that
the payments she received under the Michigan worker’s
compensation order are a direct result of Mr. Baldwin’s personal
injury arising out of his course of employment with GM.
Therefore, the reimbursement would likewise not be includable in
her gross income for the years in issue.
Respondent contends that Healthcare’s payments awarded to
petitioner under the Michigan Act were not received on account of
personal injuries or sickness of the petitioner as required under
section 104(a)(1). Instead, the payments were compensation to a
familial attendant-care provider for services provided to a
disabled former employee. Therefore, the payments are not
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excludable from petitioner’s gross income under section
104(a)(1). We agree with respondent.
Section 61(a) broadly defines gross income as “all income
from whatever source derived”. Compensation for services is
expressly included within this broad definition. See sec.
61(a)(1).
Under section 104(a)(1), amounts received as worker’s
compensation are excluded from gross income. However, the Court
has held that “statutes granting tax exemptions should be
strictly construed.” Kane v. United States, 43 F.3d 1446, 1449
(Fed. Cir. 1994); see Commissioner v. Jacobson, 336 U.S. 28, 39
(1949). A taxpayer seeking a deduction or exclusion from gross
income “must be able to point to an applicable statute and show
that he comes within its terms.” New Colonial Ice Co. v.
Helvering, 292 U.S. 435, 440 (1934).
Section 104(a)(1) excludes from gross income “amounts
received under workmen's compensation acts as compensation for
personal injuries or sickness”. Section 1.104-1(b), Income Tax
Regs., includes amounts received by an employee “under a statute
in the nature of a workmen’s compensation act which provides
compensation to employees for personal injuries or sickness
incurred in the course of employment.” Therefore, in order to
resolve this matter, we must consider the relevant provisions of
the worker’s compensation act under Michigan law and determine
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the reason why the payments are paid. See Givens v.
Commissioner, 90 T.C. 1145, 1148, 1152 (1988); Dyer v.
Commissioner, 71 T.C. 560, 562 (1979).
In this case, the payments received by petitioner for
attendant and nursing care services rendered to her husband were
paid under a claim filed by Mr. Baldwin with the Michigan Bureau
of Worker’s Disability Compensation pursuant to the Michigan Act.
The section provides, in part, that:
The employer shall furnish, or cause to be
furnished, to an employee who receives a
personal injury arising out of and in the
course of employment, reasonable medical,
surgical, and hospital services and
medicines, or other attendance or treatment
recognized by the laws of this state as
legal, when they are needed...Attendant or
nursing care shall not be ordered in excess
of 56 hours per week if the care is to be
provided by the employee’s spouse, brother,
sister, child, parent or any combination of
these persons.
This statute requires employers to furnish “reasonable medical”
or “other attendance or treatment” services to a disabled
employee as they are “needed”. In holding that petitioner was
entitled to payment for attendant and nursing care, the Appellate
Commissioner considered the type of particular services rendered
by petitioner, the number of hours of day petitioner provided
those services, and the value of such services. Petitioner’s
services to Mr. Baldwin clearly falls under this statute as
exhibited in the Appellate Commissioner’s order.
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The Michigan Supreme Court has addressed the nature and
purpose of the payments made under this statute in Kushay v.
Sexton Dairy Co., 228 N.W.2d 205 (Mich. 1975). In Kushay, the
Court found that where the wife of a disabled husband, who became
totally and permanently disabled, performed services of attendant
care under the statute, the employer has a “duty to compensate
him or her as the person who discharges the employer’s duty to
provide them.” Id. at 74. If services are rendered as provided
by the statute, by the spouse or a third party, the employer has
an obligation to pay for them. Id. at 74. Also, in Dunaj v.
Harry Becker Co., 217 N.W.2d 397, 399-400 (Mich. Ct. App. 1974),
the Court of Appeals of Michigan held that medical services
provided by a claimant’s wife were “compensable to the same
extent as they would be if the services had been rendered by
someone other than the wife.”
In order to receive payments as an attendant-care provider,
petitioner had to provide attendant and nursing care services to
her husband. Likewise, GM was under an obligation to furnish
payments for attendant and nursing care services rendered by
petitioner or a third party.
This Court has addressed a similar issue in Bannon v.
Commissioner, 99 T.C. 59 (1992), where a California statute
allowed taxpayer to receive welfare benefits for providing
nonmedical care to her disabled adult daughter, the recipient of
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the welfare payments. The Court found that taxpayer’s daughter
employed taxpayer to provide services, that payments were
disbursed in the name of the disabled daughter during the first
half of the year under an advance payment method, whereas,
payments were directly disbursed to petitioner-health care
provider and the other provider, during the last half of the
year. At all times during the year in issue, the agency
disbursing the funds considered the disabled daughter as the
recipient of the benefits and the employer of the care providers.
Therefore, the payments were includable in the taxpayer’s gross
income as compensation. See id. at 66.
Moreover, petitioner’s case is almost identical to the facts
in Goldman v. United States, 79 F. Supp. 2d 1356 (N.D. Ga. 1998),
affd. per curiam without published opinion 196 F.3d 1262 (11th
Cir. 1999). In Goldman, Mrs. Goldman received reimbursement
under a similar Florida statute for providing attendant care to
her fully disabled husband. Mrs. Goldman did not include amounts
received for services on their joint return because she argued
the payments were fully excludable under section 104(a)(1). In a
refund action, the U.S. District Court for the Northern District
of Georgia, applying Florida law, found that an award of
attendant-care services for care given by taxpayer was properly
included in gross income as compensation for services under the
doctrine of anticipatory assignment. The Court held that the
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fact that checks were received in Mr. Goldman’s name from the
employer’s insurance carrier did not necessitate exclusion under
section 104(a)(1). The true earner was Mrs. Goldman for the
services she provided to her disabled husband under the statute.
Clearly, in this case, petitioner is not the intended
recipient of amounts received under a workmen’s compensation act
as specified in section 104(a)(1). There is no question that
amounts received by Mr. Baldwin from the workmen’s compensation
award falls under the section 104(a)(1) exclusion from gross
income.
However, because the payments to petitioner were for
attendant and nursing care services rendered by petitioner to Mr.
Baldwin, the amounts paid to petitioner do not constitute amounts
“received under workmen's compensation acts as compensation for
personal injuries or sickness” pursuant to section 104(a)(1) or
amounts received by an employee “under a statute in the nature of
a workmen’s compensation act” pursuant to section 1.104-1(b),
Income Tax Regs. Petitioner received amounts from GM as
compensation for services rendered, albeit to her husband, as an
attendant-care provider. The source of her income is derived
from a separate State statute for assistance as an attendant-care
provider and does not arise from the same workmen’s compensation
statute which awarded Mr. Baldwin’s workmen’s compensation
benefits. The payments herein are compensation for attendant and
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nursing care services rendered to an individual who is receiving
disability payments. Respondent is sustained on this issue.
In the alternative, petitioner apparently contends that the
payments for the years in issue should be excludable from gross
income because of a prior representation from Healthcare’s
predecessor corporation. Though Healthcare’s predecessor
corporation may have made representations that the payments
received by petitioner were not includable in gross income, the
prior representation is irrelevant as to whether the payments are
includable in gross income for the years in issue.
Finally, petitioner’s counsel in Petitioner’s Opening Brief
contends for the first time that the payments from Healthcare are
excludable from petitioner’s gross income for the years in issue
as amounts received pursuant to an insurance plan under section
105(b).
Respondent contends that because the applicability of
section 105(b) was not raised until Petitioner’s Opening Brief,
the record is devoid of any evidence regarding whether or not
section 105(b) is applicable in this case.
The rule that a party may not raise a new issue on brief is
not absolute, but it is founded upon the determination as to
whether considerations of surprise and prejudice require that a
party be protected from having to face a belated confrontation
which precludes or limits that party's opportunity to present
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pertinent evidence. See Ware v. Commissioner, 92 T.C. 1267, 1268
(1989), affd. 906 F.2d 62 (2d Cir. 1990).
Though petitioner has failed to establish in the record
before us that the Michigan Worker’s Compensation Act qualifies
as “an accident and health plan” as defined in section 105(e),
and has further failed to establish that the payments she
received from Healthcare are “amounts received by an employee”
pursuant to section 105(a), the issue can be decided based solely
on the language of the relevant statute, and we shall therefore
allow petitioner to argue her reliance on section 105 in her
brief.
Petitioner’s contention that her payments are excludable
from gross income for the years in issue pursuant to section
105(b) is not supported by the language of section 105. Section
105(a) excludes certain “amounts received by an employee” from
gross income and section 105(b) excludes “amounts referred to in
subsection (a) if such amounts are paid, directly or indirectly,
to the taxpayer to reimburse the taxpayer” for incurred medical
expenses. Section 105 concerns the tax treatment of the employee
and not the attendant-care provider. Petitioner in this case is
clearly not a taxpayer being reimbursed for medical expenses but
an attendant-care provider being paid for services rendered to
such a taxpayer.
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We agree with respondent’s contention that the payments to
petitioner were received by petitioner in her role as a care
provider to Mr. Baldwin and that she was required to provide
attendant and nursing care in order to receive the payments as
compensation for services rendered to Mr. Baldwin. Although we
are sympathetic with petitioner’s circumstances, we are
constrained by the Michigan statute and pertinent caselaw in
defining petitioner’s income for attendant-care services to her
husband as compensation. The payments are therefore includable
in petitioner’s gross income for the years in issue as
compensation for the attendant and nursing care services she
provided to Mr. Baldwin.
Upon the basis of the record, we therefore hold that the
payments to petitioner from Healthcare are includable in her
gross income for the years in issue.
To reflect the foregoing,
Decision will be entered
under Rule 155.