Cynthia Hailstone and John Linford v. Comm., TCS 2023-17
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Disability Payments Taxable if Premiums Paid by Employer (Cynthia Hailstone and John Linford v. Comm., TCS 2023-17)
John Linford was provided disability insurance by his employer. Under the terms of the policy, employees were not required to contribute to the policy premiums. Rather, the company was required to pay 100% of the premiums. During 2017, Mr. Linford was approved and he received $105,000 of disability payments and a 2017 Form W-2 reporting the payments. He did not report the payments.
Under §105(a) if the amounts of the disability payments were paid under a policy for which the contributions (premiums) were paid by the company, the exclusion under §105(c) does not apply. Rather, under §61 the disability payments Mr. Linford received in 2017 are includible in his gross income. Accuracy-related penalties applied because Mr. Linford did not have reasonable cause and did not act in good faith in not reporting the disability payments.