Opinion
Docket Nos. 57691 59149.
1956-09-28
FREDERICK V. McNAIR AND AGNES D. McNAIR, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
J. Benjamin Simmons, Esq., for the petitioners. John W. Dowdle, Jr., Esq., for the respondent.
J. Benjamin Simmons, Esq., for the petitioners. John W. Dowdle, Jr., Esq., for the respondent.
Petitioner was retired from the United States Navy for age and length of service June 30, 1931, and placed upon a retired list under Act of March 3, 1931, 46 Stat. 1483, for reasons other than physical disability. On April 10, 1941, he was recalled to active duty upon being found physically qualified therefor. On September 25, 1942, a Board of Medical Survey determined that petitioner was suffering from tuberculosis which was attributable to his recall to active duty and that he was no longer fit for active duty and he was on November 1, 1942, released from active duty. He continued to receive retirement pay allowance based upon age, length of service, and naval rating of commander. Because said retirement allowance was the maximum allowable by the retirement board upon retirement based on disability, that board refused to consider his case for lack of jurisdiction. Held, petitioner's pay allowance, being based upon his retirement for age and length of service, was not paid as a pension, annuity, or other allowance for personal injuries or sickness resulting from active service in the Armed Forces.
Deficiencies as below enumerated have been found by the Commissioner against the petitioners for the years 1948 through 1953:
+---------------------------+ ¦Docket No.¦Year ¦Deficiency¦ +----------+-----+----------¦ ¦57691 ¦1950 ¦$528.94 ¦ +----------+-----+----------¦ ¦ ¦(1948¦775.16 ¦ +----------+-----+----------¦ ¦ ¦(1949¦590.12 ¦ +----------+-----+----------¦ ¦59149 ¦(1951¦514.12 ¦ +----------+-----+----------¦ ¦ ¦(1952¦685.26 ¦ +----------+-----+----------¦ ¦ ¦(1953¦601.48 ¦ +---------------------------+
Upon motion of the parties Docket Nos. 57691 and 59149 have been consolidated for trial and opinion inasmuch as the issues raised by the pleadings therein are identical. Due to respondent's concession that the statute of limitations has run with respect to the years 1948 and 1949, the issue for decision is whether the pay allowance received by petitioner Frederick V. McNair from the United States Navy during the years 1950 to and including 1953 constitutes taxable income or whether such is excludible from income as amounts received as a pension, annuity, or similar allowance for personal injuries or sickness resulting from active service in the Navy.
FINDINGS OF FACT.
Facts which have been stipulated are so found.
The petitioners, Frederick V. McNair and Agnes D. McNair, are husband and wife and reside at Annapolis, Maryland. The amounts in controversy arose solely through the efforts of Frederick V. McNair, hereinafter sometimes referred to as petitioner; and Agnes D. McNair is a party to this action only by reason of the filing of joint returns.
Petitioner entered the service of the United States Navy on June 24, 1899. On June 30, 1931, he was involuntarily transferred to the retired list of the Navy because at that date he had become ineligible for promotion by reason of length of service. Petitioner's retirement was accomplished pursuant to the provisions of the Act of March 3, 1931, 46 Stat. 1483, and his placement on the retired list was for reasons other than physical disability. Upon retirement petitioner was entitled to and did receive retirement pay computed at 2 1/2 percent times the active-duty pay of a commander times 30 years' service.
Petitioner received orders dated April 10, 1941, from the Navy Department, Bureau of Navigation, recalling him to active duty. In accordance with said orders petitioner was examined on April 10, 1941, was found physically qualified for active duty, and reported for active duty with the Navy May 1, 1941. He was subsequently admitted to the United States Naval Hospital, Jacksonville, Florida, where a physical examination on August 25, 1942, revealed that he was suffering from tuberculosis, pulmonary, chronic active, moderately advanced. He was then transferred to the United States Naval Hospital, at Bethesda, Maryland, where on September 25, 1942, he was examined by a Board of Medical Survey which confirmed the findings of the Naval Hospital at Jacksonville, Florida. The Board expressed the opinion that petitioner's lesions were ‘extensive enough to prevent any possibility of his ever returning to active duty,‘ and recommended that petitioner appear before a Naval Retiring Board, which recommendation was approved by the Chief of the Bureau of Medicine and Surgery of the Navy Department.
Subsequently, upon inquiry of petitioner, he was advised by the Bureau of Naval Personnel that the Naval Retiring Board had no jurisdiction to act upon the recommendation of the Board of Medical Survey because petitioner was then entitled to receive retired pay based upon 75 percent of his active-duty pay which was equal to the most he could be entitled to under disability retirement. The Chief of the Bureau of Naval Personnel thereupon disapproved the recommendation of the Board of Medical Survey and released petitioner from active duty November 1, 1942.
Petitioner has continued throughout the years at issue to receive a pay allowance from the United States Navy computed at 2 1/2 percent times 30 years times the active-duty pay of a United States Navy commander.
For each of the years at issue petitioners filed timely joint income tax returns with the collector for the district of Maryland, noting in each the retired pay allowances received but not including such pay in taxable income.
The United States Navy pay allowance received by petitioner during the years at issue was based upon his retirement for age and length of service and was not paid as a pension, annuity, or other allowance for personal injuries or sickness resulting from active service in the Armed Forces.
OPINION.
WITHEY, Judge:
Resolution of the issue here presented is dependent on statutory provision, not equity principles as urged in part by petitioner. We are justified in assuming that Congress has enacted applicable legislation with due consideration to the equities involved herein.
Section 22(b)(5) of the Internal Revenue Code of 1939
permits the exclusion from gross taxable income of pay allowances to members of the armed services where such allowances are based upon sickness or personal injuries arising from active service in the armed services. No provision is made for the exclusion of allowances to such members where the allowance is based upon length of service. There is no claim here but that petitioner's allowance is and always has been computed at 2 1/2 percent times his 30 years of service times the pay of a commander, the rank held by him at retirement and also the rank held by him upon his recall to active service.
SEC. 22. GROSS INCOME.(b) EXCLUSIONS FROM GROSS INCOME.— The following items shall not be included in gross income and shall be exempt from taxation under this chapter:(5) COMPENSATION FOR INJURIES OR SICKNESS.— Except in the case of amounts attributable to (and not in excess of) deductions allowed under section 23(x) in any prior taxable year, * * * 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;
Nor is there any dispute that he was placed upon the retired list and paid an allowance under the Act of March 3, 1931, 46 Stat. 1483, for reasons other than physical disability. The record does not disclose that his retirement status has been altered in any way since its genesis June 30, 1931. That he may or may not actually be entitled to now be retired for physical disability and to receive an allowance based thereon is not material here and that issue is not before us. We must view the situation as it is. It necessarily follows from the foregoing that petitioner's retired pay allowances for the years here at issue are not excludible from gross taxable income under section 22(b)(5). Marshall Sherman Scarce, 17 T.C. 830; Joseph B. Simms, 17 T.C. 1, affd. 196 F.2d 238; and Elmer D. Pangburn, 13 T.C. 169
In making our decision herein we are not unmindful of Prince v. United States, (Ct. Cl., 1954) 119 F.Supp. 238, wherein the Court of Claims on facts similar to but distinguishable from the facts with which we are here concerned held retired pay allowances exempt from Federal taxation under section 22(b)(5). The crucial factual distinction is that in Prince the taxpayer, although retired for age and thereafter recalled to active duty in the armed services, did appear before the appropriate retirement board, which board made a finding that he (Prince) could have been originally retired for disability. In the instant case, petitioner did not appear before the retirement board and at the time of his original retirement obviously was not entitled to a disability retirement. Whether or not the factual differences noted constitute a distinction we respectfully decline to follow the Court of Claims in Prince and adhere to the principles enunciated in Marshall Sherman Scarce, Joseph B. Simms, and Elmer D. Pangburn, supra.
Decisions will be entered under Rule 50.