Lambert v. Commissioner , 49 T.C. 57 ( 1967 )

William H. Lambert and Beulah E. Lambert, Petitioners v. Commissioner of Internal Revenue, Respondent

Lambert v. Commissioner

Docket No. 7118-65

United States Tax Court

49 T.C. 57; 1967 U.S. Tax Ct. LEXIS 24;

October 31, 1967, Filed

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">*24 Decision will be entered under Rule 50.

Petitioner retired from the U.S. Army based upon his length of service. Subsequently, the Veterans' Administration determined that petitioner was entitled to 30-percent Veterans' Administration disability rating. Thereafter, petitioner computed his income tax for the years 1961, 1962, and 1963 as if he had retired from the Army for service-incurred physical disability, i.e., he excluded from gross income an amount equal to 30 percent of the pay he received while on active duty. Held, petitioner may not exclude any part of the retirement pay received by him from the U.S. Army from gross income pursuant to sec. 104(a)(4), I.R.C. 1954.

Alvin R. Wohl, for the petitioners.

Harry M. Asch, for the respondent.

Withey, Judge.

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WITHEY

">*57 Respondent determined deficiencies in petitioners' income tax as set forth below:

	Amount of
Taxable year	deficiency
1961	$ 452.67
1962	464.64
1963	480.31

The only issue to be decided in this case is whether petitioner may exclude from his gross income pursuant to section 104(a)(4) of the Internal Revenue Code of 1954, ¹ any part of the retirement pay received by him from the U.S. Army in the years in question.

">*26 ">*58 FINDINGS OF FACT

Such facts as have been stipulated are so found.

Petitioners are husband and wife and reside in Sacramento, Calif. They filed joint Federal income tax returns for the calendar years 1961, 1962, and 1963 with the district director of internal revenue, San Francisco, Calif. Since Beulah E. Lambert is a party to this proceeding only because she filed joint income tax returns for the years involved herein, William H. Lambert will hereafter be referred to as the petitioner.

Prior to December 31, 1959, petitioner had served for a period in excess of 34 years in the U.S. Army with over 20 years of such service being on active duty. Petitioner requested voluntary retirement as a regular officer of the U.S. Army who has at least 20 years of service with pay based on length of service. This request was granted effective December 31, 1959, and he was retired in the grade of lieutenant colonel under the provisions of 10 U.S.C. sec. 3911, with retirement pay based on length of service. Since retirement, including all the years at issue, petitioner has been entitled to and has received the maximum amount of retirement pay for length">*27 of service, i.e., 75 percent of his active-duty pay as a lieutenant colonel in the U.S. Army.

As part of petitioner's separation from the Army by reason of his retirement, he underwent a medical examination. A portion of this medical examination consisted of petitioner's filling out and signing a Report of Medical History, dated November 23, 1959, which contained, in part, the following:

34. HAVE YOU EVER HAD ANY ILLNESS OR INJURY OTHER THAN THOSE ALREADY NOTED? (If yes, specify when, where, and give details.)

[Petitioner's answer] 34(3) Hospitalized 2nd Evacuation Hospital, Hollandia, N.G. and 80th Station Hosp. Oro Bay N.G. Fractured skull, broken jaw and other injuries (1944).

* * * *

39. HAVE YOU EVER RECEIVED, IS THERE PENDING, HAVE YOU APPLIED FOR OR DO YOU INTEND TO APPLY FOR PENSION OR COMPENSATION FOR EXISTING DISABILITY? (If yes, specify what kind, granted by whom, and what amount, when, why.)

[Petitioner's answer] 39. Should any of the above prove to be disabling in the future I would apply for adjustment of retirement.

40. PHYSICIAN'S SUMMARY AND ELABORATION OF ALL PERTINENT DATA (Physician shall comment on all positive answers in items 20 thru 39.)

[Physician's comment] ">*28 * * * skull fracture 1944 -- headaches occasionally now.

The doctor's findings from the medical examination of petitioner are found in the Report of Medical Examination which contains, in pertinent part, the following:

74. SUMMARY OF DEFECTS AND DIAGNOSES (List diagnoses with item numbers.)

">*59 Hearing loss Bilateral

Benign prostatic hypertrophy

* * * *

77. EXAMINEE (Check)

A IS QUALIFIED FOR

B IS NOT QUALIFIED FOR

retirement [checked as qualified]

No other medical findings were made by the Army in regard to petitioner.

On or about March 8, 1960, petitioner filed an application for a claim with the Veterans' Administration for disability compensation. The findings and conclusions of the Veterans' Administration in regard to petitioner's claim are found in the rating decision issued by that agency, which contains, in pertinent part, the following:

Inasmuch as this veteran did incur trauma to facial bones in 1944 with multiple lacerations and contusions, and since it is the opinion of the examiner that veteran currently has residuals of cerebral concussion, all doubt will be resolved in favor of the veteran and service connection for cerebral concussion will be assigned and ">*29 a minimal evaluation also assigned since veteran is symptomatic. * * *

The disability rating awarded to petitioner by the Veterans' Administration was 30 percent, as a result of which petitioner was entitled to and received a monthly disability compensation payment of $ 55 commencing on January 1, 1960, which amount it is conceded is not subject to income tax.

Under the applicable statute, petitioner was prohibited from receiving any veteran's disability compensation to the extent that such compensation would be a duplication of any benefits of any kind at all based on his military service. Accordingly, in order to receive his monthly disability compensation from the Veterans' Administration, petitioner elected to waive so much of his retirement pay from the Army as was equal in amount to the Veterans' Administration disability compensation ($ 55).

Petitioner's treatment for income tax purposes of the amounts received from the Army and the Veterans' Administration in the years in question is shown by the following table:

Explanation	1961	1962	1963
Lt. colonel's active-duty pay	$ 9,300	$ 9,300	$ 9,300.00
Retirement pay received from Army	6,315	6,297	6,366.18
Disability compensation received from Veterans'
Administration	660	678	696.00
Total retirement and disability pay received	6,975	6,975	7,062.18
Petitioner's disability computation (30 percent of
active duty pay or .30 X $ 9,300)	2,790	2,790	2,790.00
Less disability compensation received from Veterans'
Administration	660	678	696.00
Amount petitioner excluded under sec. 104(a)(4),
which is in issue	2,130	2,112	2,094.00
Amount of retirement pay reported by petitioner
(retirement pay received from Army less amount
excluded under sec. 104(a)(4))	4,185	4,185	4,272.18

">*30 ">*60 In the years in issue petitioners did not claim the benefits of the retirement income credit provision of section 37 of the Code but they now claim this credit pursuant to their amended petition. Respondent concedes that petitioners are entitled to this retirement income credit.

ULTIMATE FINDINGS

There was no finding by the U.S. Army that petitioner at the time of his retirement was physically disabled or other than physically fit and no determination by the Secretary of the Army or anyone empowered by him that petitioner was entitled to retire for physical disability.

For the tax years at issue no retirement payments received by petitioner other than the $ 55 monthly Veterans' Administration payments constituted "a pension, annuity, or similar allowance for personal injuries * * * resulting from active service in the armed forces of" the United States.

OPINION

The sole issue for decision in this case is whether petitioner may exclude any part of the retirement pay received by him from the U.S. Army from gross income pursuant to section 104(a) (4) of the Code. ²

">*31 Petitioners' position, briefly stated, is that since at the time he retired from the Army he could have retired for either length of service ³ or for a service-incurred physical disability, ⁴ the fact that he chose the former for personal reasons does not preclude exclusion under section 104(a) (4) of that percentage of the retirement pay corresponding to the percentage of disability petitioner claims to have incurred. We do not get to the issue of the importance of the form of the retirement chosen by petitioner, however, because petitioner has failed to establish on the record that he was, in fact, entitled to retire for physical disability when he left the service.

Petitioners' argument is that the subsequent determination by the Veterans' Administration of a 30-percent Veterans' Administration disability rating for petitioner establishes that petitioner was 30-percent disabled for Army">*32 retirement purposes, and that he thus would have been entitled to retire for physical disability had he so chosen. However, as was stated in Wales v. United States, 130 F. Supp. 900">130 F. Supp. 900 (Ct. Cl. 1955):

">*61 The fact that the Veterans' Administration rated plaintiff 30 percent disabled and granted him disability compensation does not, as the plaintiff contends, entitle him to disability retirement under section 402(a) of the Career Compensation Act of 1949. ⁵ The mere fact that plaintiff suffered ailments which form the basis for compensation by the Veterans' Administration does not entitle him to retirement and retirement pay for physical disability. * * * Not all ailments or disabilities are incapacitating to the extent of requiring retirement.

Thus the finding of the Veterans' Administration is immaterial to the issue of whether petitioner could have retired for physical disability from the Army, and the record is barren of any evidence showing that the Army considered the petitioner entitled to such a retirement. In fact, the Report of Medical Examination containing the results of petitioner's retirement physical examination shows that ">*33 petitioner was qualified for retirement other than for disability, i.e., that he was physically fit on retirement, so far as the Army was concerned.

Under 10 U.S.C. sec. 1216(b), the Secretary of the Army has all powers, functions, and duties incident to the determination under the chapter concerning retirement for physical disability, of the fitness for active duty of any member of the Army. Nowhere in the record has petitioner shown any determination by the Army that he was at the time of his retirement unfit for active duty so as to be eligible to retire for physical disability, and in the absence of such determination, petitioners' argument in this case must fail. Accordingly, we find that petitioner may not exclude any part of the retirement pay he received from the Army from gross income pursuant to section 104(a)(4), and we sustain the determination of the respondent.

Decision will be entered under Rule ">*34 50.

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Footnotes

• 1. All references are to the Internal Revenue Code of 1954 unless otherwise indicated.↩

• 2. SEC. 104. COMPENSATION FOR INJURIES OR SICKNESS.

  (a) In General. -- Except in the case of amounts attributable to (and not in excess of) deductions allowed under section 213 (relating to medical, etc., expenses) for any prior taxable year, gross income does not include --

  * * * *

  (4) amounts received as a pension, annuity, or similar allowance for personal injuries or sickness resulting from active service in the armed forces of any country * * *↩

• 3. 10 U.S.C. sec. 3911↩.

• 4. 10 U.S.C. sec. 1201↩.

• 5. The statute under which Army disability retirement is provided.↩