Pangburn v. Commissioner

Elmer D. Pangburn, Petitioner, v. Commissioner of Internal Revenue, Respondent. Anna H. Pangburn, Petitioner, v. Commissioner of Internal Revenue, Respondent Pangburn v. Commissioner Docket Nos. 18733, 18734 United States Tax Court 13 T.C. 169; 1949 U.S. Tax Ct. LEXIS 115; August 5, 1949, Promulgated *115 Decisions will be entered for the respondent. Retirement pay received by a former officer of the U. S. Army for length of service under section 5, ch. 422 (July 31, 1935), 49 Stat. 507, in 1944 and 1945 does not constitute "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" and, therefore, is not exempt from taxation under section 22 (b) (5), I. R. C. Elmer D. Pangburn, pro se. Gerald W. Brooks,*116 Esq., for the respondent. Van Fossan, Judge. VAN FOSSAN *169 The Commissioner determined deficiencies in income tax for the years 1944 and 1945 in the aggregate amounts as follows: Docket No. 18733, Elmer D. Pangburn, $ 952.38, and Docket No. 18734, Anna H. Pangburn, $ 942.37. The only question involved is whether the retirement pay received by petitioner Elmer D. Pangburn is exempt from income tax under section 22 (b) (5) of the Internal Revenue Code. Most of the facts were stipulated. FINDINGS OF FACT. Elmer D. Pangburn, hereinafter referred to as the petitioner, and Anna H. Pangburn are husband and wife, their address being Box W, Boyes Hot Springs, California. For the years 1944 and 1945 they filed separate individual income tax returns (Form 1040) with the collector of internal revenue for the first district of California at San Francisco, California. The petitioner entered the Regular Army as a private on November 12, 1912, and served continuously until retirement on January 31, 1942, except that he was furloughed to the Regular Army reserve November 11, 1915, and held that status until July 22, 1916, when he was recalled to active duty. He was out of the service*117 from April 6 to August 30, 1918, and from December 10, 1918, to April 17, 1919. He served in the punitive expedition into Mexico (1916-1917) and in the first World War and a portion of World War Two. He did not have any physical impairments or diseases when he joined the Army in 1912. He contracted acute bronchitis as a result of rigorous service and exposure in Mexico in 1916-1917, and was hospitalized *170 for this disease in 1917. He had recurrences of bronchitis, after the original attack, over a period of 24 years to date of retirement. Several months prior to his request for retirement, petitioner was serving in New Jersey. The climate affected him adversely and he suffered from bronchitis constantly. He was informed by medical officers that it was certain he would be retired for physical disability after his next annual physical examination. Thereafter, on September 20, 1941, the petitioner made application for voluntary retirement in the grade of lieutenant colonel, as of December 31, 1941, under the provisions of section 5 of the Act of Congress, approved July 31, 1935, as amended. 1 *118 Special Orders No. 252 issued by the War Department, Washington, D. C., October 28, 1941, relative to the retirement of petitioner from active service, is in part as follows: Major Elmer D. Pangburn (O-10420), Quartermaster Corps, upon his own application is retired from active service in the grade of lieutenant colonel, to take effect 31 January, 1942, under the provisions of section 5 of the act of Congress approved 31 July, 1935, as amended by section 3 of the act of Congress approved 13 June, 1940 (Public, No. 612, 76th Cong.). He is relieved from assignment and duty at Fort Dix, New Jersey, on 31 January, 1942, and, at the proper time, will proceed to his home. * * * The "Report of Physical Examination" (W. D., A. G. O. Form No. 63), dated November 18, 1941, is in part as follows: * * * * 3. Nature of examination: Retirement. * * * * 26. Is the individual permanently incapacitated for active service? Yes. If yes, specify defect Chronic Bronchitis. In the years 1944 and 1945 the Finance Officer, United States Army, Washington, D. C., paid retirement pay to petitioner in the amount of $ 3,806.28 each year, less $ 204 Federal income tax withheld for 1944 and $ 470.40 withheld*119 for 1945. In their individual income tax returns for the year 1944, petitioner and his wife each reported the amount of $ 1,903.14 in schedule A, "Income from Annuities and Pensions," as "1/2 retired pay from Army, exempt" and did not extend the amount into the gross income column. In their individual income tax returns for 1945, each included the amount of $ 1,903.14 in gross income shown on line 2, but also included the same amount as a "miscellaneous" deduction with this explanation: "Retired pay U. S. Army, see statement and photostats filed *171 1942 and statement filed 1943 with Collector of Internal Revenue, San Francisco." In determining the deficiency in the case of each petitioner, the Commissioner for the year 1944 added the amount of $ 1,903.14 to the gross income as disclosed by the return, with the following explanation: (a) Income is increased by $ 1,903.14 (1/2 of $ 3,806.28) representing army retirement pay received under section 5 of the Act of Congress approved July 31, 1935, as amended. It is held that the retirement pay was not for personal injuries or sickness incurred while in the active service of the armed forces and that such pay constitutes taxable*120 income. In determining the deficiency in the case of each petitioner for the year 1945, the Commissioner added the amount of $ 1,903.14 to the net income as disclosed by the return, page 3, line 3, with the following explanation: (a) Deduction for army retirement pay in the amount of $ 1,903.14 is disallowed. Such pay was awarded under section 5 of the Act of Congress approved July 31, 1935, as amended, which gives no recognition to physical injuries or sickness, and is, therefore, taxable income. OPINION. The question to be determined is whether the retirement pay received by petitioner in 1944 and 1945 is exempt from income taxation under section 22 (b) (5) of the Internal Revenue Code. 2 *121 The petitioner states that under Army regulations he was entitled to request retirement for physical disability and that he would have requested retirement for physical disability if the Revenue Act of 1942 had been enacted at the time of his retirement. He contends that it was the intent of Congress, by the enactment of section 113, to exempt from taxation retirement pay of all persons disabled in military service. The part of section 22 (b) (5) upon which petitioner relies, i. e.: * * * and 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; * * * was added to that section by section 113 of the Revenue Act of 1942, approved October 21, 1942. *172 The petitioner did not receive his retirement pay for personal injuries or sickness resulting from active service in the armed forces. The petitioner requested retirement and was retired under section 5 of chapter 422, enacted July 31, 1935, as amended, permitting any officer on the active list of the Regular Army, having completed not less than 15 nor more than 29 years of service, to retire upon his own application. His*122 retirement pay, therefore, was received by petitioner as compensation for length of service. The fact that medical officers reported him permanently incapacitated for active service is not determinative. The retirement pay must be received as compensation for such physical disability. "Exemptions from taxation do not rest upon implication." United States Trust Co. of New York v. Helvering, 307 U.S. 57. It is to be noted that the Finance Officer, U. S. Army, withheld from petitioner's retirement pay $ 204 in 1944 and $ 470.40 in 1945. Moreover, the intent of Congress is clearly made manifest in Senate Report No. 1631, 77th Cong., 2d sess. (1942 -- 2 C. B. 504, 563-4)3 by the statement therein that the "amendment does not apply to retirement pay not constituting amounts paid on account of personal injuries or sickness." *123 Although petitioner was informed by medical officers that it was certain that he would be retired for physical disability after his next annual physical examination to be made in about two months, he chose to retire voluntarily and made his request for retirement for length of service. Since the retirement pay received by petitioner in 1944 and 1945 did not constitute amounts paid on account of personal injuries or sickness, the action of the respondent in including one-half of such pay in each of petitioner's gross income is approved. Decisions will be entered for the respondent. Footnotes 1. Sec. 5. That whenever any officer on the active list of the Regular Army or Philippine Scouts shall have completed not less than fifteen nor more than twenty-nine years' service, he may upon his own application be retired, in the discretion of the Secretary of War * * *. [Sec. 5, ch. 422 (July 31, 1935), 49 Stat. 507, as amended by sec. 3, ch. 344, June 13, 1940, 54 Stat. 380.]↩ 2. 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. -- * * *, and 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. Section 113. Exclusion of Pensions, Annuities, Etc., for Disability Resulting from Military Service. This section, which was not included in the House bill, amends section 22 (b) (5) to exclude from gross income amounts received as a pension, annunity, or similar allowance for personal injuries or sickness resulting from active service in the armed forces of any country. Although the amendment does not apply to retirement pay not constituting amounts paid on account of personal injuries or sickness↩, it is not intended to restrict any exemption now provided by any other Act such as the Act approved August 12, 1935 (49 Stat.. 607), entitled "An Act to safeguard the estates of veterans derived from payments of pension, compensation, emergency officers' retirement pay and insurance, and for other purposes." [Emphasis supplied.]