Police Disability Pension

L1: Police Disability PensionI was a police officer who was retired on a police disability pension due to occupational injuries. It ismy understanding that such pensions are not taxable under the IRS codes. I would like to find the IRS code or rulings that pertain to this subject. I have found many places on the Internet that speak of such rulings, including a 1993 private letter ruling, but I have been unable to actually locate the language or a copy of these rulings and letters. Any help would be appreciated.2008-01-24 08:13, By: Bill, IP: [71.3.236.84]
L2: Police Disability PensionHi, Bill:
I found some interesting info on the Internet about this. Here is the URL for it:
http://www.imtausa.org/EH20061020.htm
As this matter seems to be of some importance to you, it would be a good idea to talk to a tax pro about this matter. That way, you should get the facts that pertain to your particular situation and not just some generic info that may or may not fit your specific situation.
Ed2008-01-24 22:00, By: Ed_B, IP: [67.170.159.37]

L2: Police Disability PensionIf it is an ordinary disability pension it is taxable. If it is an accidental disability pension it is tax free. Logic tells me you should get the definitive answer from the payer of the pension. No?
Joel L. Frank
2008-01-25 04:05, By: Joel L. Frank, IP: [24.187.32.203]

L2: Police Disability PensionEd and Joel,
Thank you for your responses, but I had already found that web site which points to the 1993 IRS ruling. What I”m looking for is the actual ruling or some similar material that is the source for the tax-exempt status of my disability pension. I have a letter from my City”s pension board that states I”ve been given a disability pension as a result of an accident sustained in the line of duty. The problem is, that I”ve been audited by the IRS and the auditor tells me that my pension is taxable, although I know it isn”t, and I have to pay back taxes for several years. He doesn”t want to hear that it is tax-free, even though it”s an accidental police disability pension. I need some hard “proof” of what the law is.
Thank you2008-01-25 06:11, By: Bill, IP: [71.3.236.84]

L2: Police Disability PensionTell the IRS agent you are dealing with that you want to speak to his/her supervisor.
Joel L. Frank
Pension Columnist
The Chief -Civil Service Leader
277 Broadway
New York, NY 100072008-01-25 08:05, By: Joel L. Frank, IP: [24.187.32.203]

L2: Police Disability PensionJoel,
I”ll try that, but when I questioned the auditor”s decision, I pointed that many IRS rulings, and their own code, established the fact that police and fire disability pensions for injuries sustained in the line of duty, were tax exempt. I then asked what was the specific code or source that contradicted this fact, and he told me that he was told by his supervisor that these pensions are taxable. It appears that these IRS auditors aren”t fully aware of their own rules. It”s frustrating and it”s like talking to a brick wall when I speak to them. Their reasoning is unsound and has no legal basis, BUT, that”s their decision and they”re sticking to it. That”s why I”m trying to locate the IRS ruling and code that provides for the tax-exempt status of these type of disability pensions.
2008-01-25 08:47, By: Bill, IP: [71.3.236.84]

L2: Police Disability PensionBill:
In my humble opinion, you have a problem that is beyond the realm of “DIY” and you should hire either a CPA or tax attorney with experience dealing with problem IRS agents. My first suggestion would be Bill Stecker, aka, “TheBadger” who posts on this site. Send Bill an e-mail at wjstecker@wispertel.net
Good luck.
Jim2008-01-25 09:17, By: Jim, IP: [24.252.195.14]

L2: Police Disability PensionSpeak to the manager of the IRS Office. If he/she doesn”t see their error then request a formal Appeal. I see no need to retain legal representation. Please get back to us with a final determination of the matter. Thanks and Good Luck.
Joel L. Frank2008-01-25 10:02, By: Joel L. Frank, IP: [24.187.32.203]

L2: Police Disability PensionBill,
This may be totally unlreated to your taxability issue as a disabled police officer, but in the business world, when Group Long Term disability policies were issued to employees who wanted coverage, if the employees paid 100% of the weekly premiums, andlatercollected on the LTD policy, all of those paymentswere deemed tax free because the employee boughtall of this insurance. If the employee and employer split the cost 25/75, then the proceeds were taxed for 75% of what the employee received under the LTD payments (for the 75% portion that the employerpaid of the premiums). Could it be as simple as the fact that you paid the premiums for this disability coverage?We found that the rate for LTD coverage, which was in the $.40 per hundred earned per week made it more advantageous for the employees to just pay the entire premium so they would have tax free income if they ever collected. It was costing $4.00 per $1,000 earned per week. Just another avenue to explore in terms of who paid for this coverage.

One more question– Were you getting 1099-R”s for this each year, and did they show a portion as taxable in box 2A? KEN

2008-01-25 16:05, By: Ken, IP: [75.67.65.254]

L2: Police Disability PensionKen,
I was retired by the City on a police disability pension due to occupational injuries. There is no question that the pension is tax-exempt, but the IRS auditor”s Supervisortold the auditor that my disability pension is taxable, although they can”t explain why when I asked for the basis for their decision, even though I explain the IRS rulings to them about these types of pensions. As far as my 1099-R goes, I”ve had problems with the City I worked for from Day-1. They include all of my pension proceeds in Box 2, as taxable income. I”ve had my CPA and Attorney battle with them, but all they say is that it”s between me and the IRS about the tax status of my pension. Other cops I know, who have retired on disability pensions, receive a 1099-R with “0” in Box 2, which is the proper way to fill out a 1099-R in these cases. With each tax return, my CPA told me to include a copy of the letter I received from the City, which grants me a disability pension, as well as a copy of the minutes from that meeting. I even supplied both documents to the IRS auditor, but he doesn”t want to hear it. I”m up against a City who refuses to comply with what”s required of them, and issue me a proper 1099-R, and now, I”m dealing with IRS people who don”t know their own laws. You couldn”t make up this scenario because no one would believe it. That”s why I”m looking for the IRS code that specifies that my pension would be tax-exempt.2008-01-25 18:00, By: Bill, IP: [71.3.236.84]

L2: Police Disability PensionBill,
It sounds like the problem that created the audit is that the municipality is coding this as all taxable income. You need to back track and find out who was paying for this coverage, and examples of others like you who are collecting for similar “in the line of duty”disability and are getting box 2 with no earnings. Until your former employer (or insurance company?) is willing to admit that they made a mistake in coding it as taxable, I don”t think the IRS is going to give in. I found this info about Pub 525 on the web that may explain some of this to you. I don”t know if it is now outdated, but it only listed exceptions for certain governmental work, and that did not include local law enforcement. You definitely need professional tax assistance if you think you are correct, or this may never end up in getting resolved in your favor.
http://www.unclefed.com/IRS-Forms/2001/HTML/p52504.html
Here are a few snippets from that site that may be applicable, but you shd read it all…
Disability pension. If your disability pension is paid under a statute that provides benefits only to employees with service-connected disabilities, part of it may be workers” compensation. That part is exempt from tax. The rest of your pension, based on years of service, is taxable as pension or annuity income. If you die, the part of your survivors” benefit that is a continuation of the workers” compensation is exempt from tax.
in the section listing income that may be non-taxable I found this—
Benefits you receive under an accident or health insurance policy on which either you paid the premiums or your employer paid the premiums but you had to include them in your income.
KEN2008-01-26 05:10, By: Ken, IP: [75.67.65.254]

L2: Police Disability PensionKen,
Thanks for the info, but I already have that language. There”s no question that my pension, which is not based on a formula, such as age or years of service; and was the result of occupational injuries; and was created by a statute similar in nature to workmen”s compensation, is tax-exempt. What I”m looking for is a copy of the 1993 ruling by the IRS in which they declared that such disability pensions for police and fire are pensions that are of the same nature as workmen”s compensation payments, therefore, making them tax exempt. IRC 104(a)(1) is the governing language on this issue, which is also contained in IRS Publication 907. Under the section “Income”, it states, “You may receive other payments that are related to your disability. The following payments are not taxable… Workers” compensation for an occupational sickness or injury if paid under a workers” compensation act or similar law”. What I need is the 1993 IRS ruling itself. It was issued 03/12/1993. Many Internet web pages point or refer to this ruling, but I can”t finda copy of it. My problem is twofold. First, the IRS auditor apparently isn”taware about thisspecifc tax ruling, and 2) the City I worked for will not issue a proper 1099-R. All they state is that thetax issue is between the IRS andme. Othercops who were similarly disabled have no problems, because their citiesindicate “0” for taxable income in Box 2 of the 1099-R. My former employer won”t budge on this issue. I even pointed this out to the IRS auditor and all he saidwas that was not his place to have them correct the 1099-R”s that they issue. If the IRS itself,isn”t willing to enforce their own regulations on employers, then WHO is? All I”m getting is the run around. That”s why I need the actual 1993 IRS ruling that pertains specifically to the tax exempt status of police/fire disability pensions.
2008-01-26 13:20, By: Bill, IP: [71.3.236.84]

L2: Police Disability PensionBill,
I feel bad for your plight so I did a little research.I”m not a tax expert…just a regular guy with an interest in taxes. I think what you are looking for is a Private Letter Ruling and not a Revenue Ruling. A very good site that I use on occasion is”legalbitstream.com”. Go to this site and do a search for Private Letter Ruling # 9337012. You will be able to review all thetext of this rulingand I think it should help you.
I”ll be away for a month or so without computer access, but I”ll check back later to see any further messages.
Good luck.2008-01-27 03:11, By: Lou, IP: [68.0.229.95]

L2: Police Disability PensionDifferent PLR #, but it seems pertinent to the situation. Still, it seems to me that state WC law would have an affect on determining the the degree of applicability of the IRS code:
http://www.legalbitstream.com/scripts/isyswebext.dll?op=get&uri=/isysquery/irl5cae/1/doc2008-01-27 19:47, By: Alan S., IP: [24.116.165.60]

L2: Police Disability PensionI”d like to thank everyone for their help. I had forwarded some of the material I was able to look up to the IRS auditor. They reversed their earlier decision and based on IRC 104-1, and other codes, they have determined that my police disability pension is indeed excluded from gross income, and thus tax-exempt. With that part of the battle over, I now have to deal with my former employer to issue a correct 1099-R. So far they have refused to issue a correct one, i.e., they won”t put in Box 2, taxable income, a zero. They put the full amount of my pension, which may still trigger audits in the future with the IRS. Now the question is, “How do you make an employer conform with the law, and issue proper 1099-Rs?” I have an attorney sending them a letter, but so far they refuse to budge.2008-01-31 08:44, By: Bill, IP: [71.3.236.84]