                         T.C. Memo. 1997-290



                       UNITED STATES TAX COURT


        GEORGE L. WILLIS AND D. THOMAS-WILLIS, Petitioners v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



       Docket No. 10597-95.1              Filed June 26, 1997.



       George L. Willis and D. Thomas-Willis, pro sese.

       Elaine L. Sierra and Thomas G. Schleier, 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


1
     By order dated Feb. 20, 1996, this case was removed from
small tax case status and the letter "S" was deleted from the
docket number.
                               - 2 -


effect for the taxable year in issue, unless otherwise indicated.

All Rule references are to the Tax Court Rules of Practice and

Procedure.

     Respondent determined a deficiency in petitioners' 1992

Federal income tax in the amount of $1,320.   After concessions,

the issue for decision is whether petitioner George L. Willis'

1992 Social Security benefits include the worker's compensation

payments he received during that year.

     The deficiency resulted from respondent's determination that

petitioners failed to include $8,833 of petitioner George L.

Willis' 1992 Social Security benefits in taxable income.

Respondent conceded that the unreported income attributable to

the taxable portion of petitioner George L. Willis' Social

Security benefits is a lesser amount than the $8,833 asserted in

the notice of deficiency, based on the limitation provisions of

section 86(e), and that such lesser amount is $7,378.

Petitioners conceded that if the worker's compensation that

petitioner George L. Willis received in 1992 is taxable as Social

Security benefits, petitioners are liable for tax on unreported

income in the amount of $7,378.

     Some of the facts have been stipulated and are so found.

The stipulated facts and attached exhibits are incorporated by

reference.   Petitioners resided in Union City, California, when
                                - 3 -


their petition was filed.   Hereafter, references to petitioner in

the singular shall denote George L. Willis.

     On July 3, 1985, petitioner suffered a career-ending back

injury while performing services as a longshoreman in the employ

of Matson Terminals, Inc. (Matson).     As a result of petitioner's

back injury, and in accordance with the Longshore and Harbor

Workers' Compensation Act (currently codified at 33 U.S.C. secs.

901-950 (1994)), Matson paid worker's compensation benefits to

petitioner for temporary disability from July 4, 1985, to July 8,

1991, and for permanent disability from July 9, 1991, through and

including taxable year 1992.2

     In addition to receiving worker's compensation benefits

during 1992, petitioner received Social Security disability

benefits.   A Notice of Award dated January 4, 1991, from the

Office of Disability and International Operations of the Social

Security Administration, announced that petitioner was "entitled

to monthly disability benefits from Social Security beginning

March 1990."   However, the notice explained:




2
     In 1993, petitioner and Matson reached a settlement
resolving petitioner's worker's compensation claim relating to
his 1985 injury as well as a claim relating to a 1980 injury.
Matson paid the settlement amount due to petitioner in 1993. The
parties have stipulated that the settlement of petitioner's
worker's compensation claims in 1993 did not affect his worker's
compensation benefits or Social Security disability benefits paid
in prior years.
                               - 4 -


     When we figure how much to pay you, we must deduct
     certain amounts, such as Medicare premiums and worker's
     compensation offset.
                    *     *   *    *    *
     We have to take into account your weekly workers'
     compensation payment * * * when we figure your Social
     Security benefits. Because you receive this payment,
     we are withholding the benefits you are due.

     Petitioner's 1992 Form SSA-1099, Social Security Benefit

Statement, reports that petitioner received total benefits for

1992 in the amount of $20,412.70.   The Form SSA-1099 reports that

$770 of that total was paid by check or direct deposit, $318 was

attributable to Medicare premiums, and $19,324.70 was

attributable to worker's compensation offset.

     On their 1992 Form 1040, U.S. Individual Income Tax Return,

filed jointly, petitioners reported Social Security benefits

received in the amount of $1,352.   They further reported that

only $338 of that amount was taxable.   Petitioners reported

adjusted gross income for 1992 in the amount of $40,474.18.

     Respondent determined that the worker's compensation

petitioner received during 1992 must be included in his Social

Security benefits.   The deficiency at issue results from the

corresponding increase in petitioners' adjusted gross income

because of such inclusion.

     Petitioner contends that his worker's compensation benefits

should not be taxable because Matson paid them from a self-

insured fund.
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     Gross income includes "all income from whatever source

derived", unless specifically excluded.    Sec. 61(a).

     Generally, gross income does not include "amounts received

under workmen's compensation acts as compensation for personal

injuries or sickness."   Sec. 104(a)(1).

     However, gross income generally includes Social Security

benefits in an amount equal to the lesser of:    (1) one-half of

such benefits received during the taxable year, or (2) one-half

of the excess over certain base amounts.    Sec. 86(a).   The base

amount for taxpayers filing a joint return for taxable year 1992

is $32,000.   Sec. 86(c)(2).   Section 86(d)(3) provides that if

any Social Security benefit is reduced by reason of the receipt

of a benefit under a workmen's compensation act, the term "social

security benefit" includes that portion of such benefit received

under the workmen's compensation act which equals such reduction.

     Section 86 was added by the Social Security Amendments of

1983, Pub. L. 98-21, sec. 121, 97 Stat. 80.    The House report

states in relevant part:

        Your Committee's bill provides that social security
     benefits potentially subject to tax will include any
     workmen's compensation whose receipt caused a reduction
     in social security disability benefits. For example,
     if an individual were entitled to $10,000 of social
     security disability benefits but received only $6,000
     because of the receipt of $4,000 of workmen's
     compensation benefits, then, for purposes of the
     provisions taxing social security benefits, the
     individual will be considered to have received $10,000
     of social security benefits.
                              - 6 -


H. Rept. 98-25, at 26 (1983), 1983 U.S.C.C.A.N. 219, 244.

     The facts are not in dispute.    Petitioners stipulated that

during 1992, petitioner received worker's compensation payments

in the amount of $19,324.70, and that the Social Security

disability benefits he was otherwise entitled to receive for that

year were reduced, or offset, by an equivalent amount.

Petitioner's 1992 Form SSA-1099 reports the same undisputed

facts.

     The language of section 86(d)(3) is unambiguous and the

statute contains no exceptions.   Neither the clear language of

the statute nor the explanation in the legislative history quoted

above provide any suggestion of a modification or exception based

on the circumstance that petitioner's worker's compensation

benefits were paid from the employer's self-insured fund.

Pursuant to section 86(d)(3), we must hold that petitioner's

Social Security benefits for 1992 include the $19,324.70 offset

corresponding to his worker's compensation payments.    Respondent

is sustained on this issue.



                                      Decision will be entered

                              under Rule 155.
