Internal Revenue Service
Revenue Ruling

TaxLinks.com   sm

 Rev. Rul. 72-45

1972-1 C.B. 34

Sec. 72
Sec. 104

IRS Headnote

Treatment of disability payments received by former members of the police and fire departments of New York City pursuant to sections B18-4.0 and B19-4.0 of the Administrative Code of the City of New York; I.T. 3877 superseded.

Full Text

Rev. Rul. 72-45 /1/

The purpose of this Revenue Ruling is to update and restate, under the current statute and regulations, the position set forth in I.T. 3877, C.B. 1947-2, 15.

The question presented is whether pensions received by former members of the police and fire departments of New York City, retired pursuant to sections B18-4.0 and B19-4.0, respectively, of the Administrative Code of the City of New York, as amended (Cum. Supp. 1969-70), because of total permanent disability caused in or induced by the actual performance of the duties of their position, are excludable from gross income under section 104 of the Internal Revenue Code of 1954.

Section B18-4.0 of the Administrative Code of the City of New York, as amended, provides, in pertinent part, as follows:

"Sec. B18-4.0 Payment of Pensions; Disability; Retirement for Service.--a. The board of trustees shall retire any member who, upon an examination, as provided in subdivision d of this section, may be found to be disqualified, physically or mentally, for the performance of his duties. Such members so retired shall receive from such pension fund an annual pension as provided in this section. In every case such board shall determine the circumstances thereof, and such pension so allowed is to be in lieu of any salary received by such member at the time of his being so retired. The department shall not be liable for the payment of any claim or demand for services thereafter rendered, and the amount of such pension shall be determined upon the following conditions:

"1. In case of total permanent disability at any time caused in or induced by the actual performance of the duties of his position, the amount of annual pension to be allowed shall be not less than three-fourths of the annual salary of such member at the date of his retirement. "1-a. In any case where a member is allowed, pursuant to paragraph one of this subdivision a, a pension equal to but not exceeding three-fourths of the annual salary of such member at the date of his retirement, such member shall receive, in addition, the amount of the deductions, without interest, made from his pay, salary or compensation pursuant to subdivision nine of section B18-3.0 of the code [an amount placed in the police pension fund, consisting of 5 percent of the semi-monthly pay of each member who elects to contribute on the basis of retirement after 25 years of service in such force, or 6 percent of the semi-monthly pay of each member who elects to contribute on the basis of retirement after 20 years of service in such force], such amount to be paid either in a lump sum or in the form of an annuity which is the actuarial equivalent of such amount of deductions, as the member may elect. Such annuity, if so elected shall be computed on the basis of the mortality tables adopted pursuant to section B18-18.0 of the code, as in effect on the date of retirement of such member, and on the basis of regular interest."

Section B19-4.0 of the Administrative Code of the City of New York, as amended, contains similar provisions with respect to disability retirement of firemen. Benefits amounting to more than three-fourths of the annual salary are provided in rare cases, the basis for such provision being medical factors unrelated to the employee's age, years of service, or prior contributions.

Section 72(a) of the Code provides the general rule that gross income includes any amount received as an annuity (whether for a period certain or during one or more lives) under an annuity, endowment, or life insurance contract. However, section 72(b) of the Code provides that gross income does not include that part of any amount received as an annuity, endowment, or life insurance contract, which bears the same ratio to such amount as the investment in the contract (as of the annuity starting date) bears to the expected return under the contract (as of such date). The expected return under the contract is determined by reference to the appropriate actuarial tables provided in section 1.72-9 of the Income Tax Regulations.

Section 104(a)(1) of the Code provides, in pertinent part and with certain exceptions not here pertinent, that gross income does not include amounts received under workmen's compensation acts as compensation for personal injuries or sickness.

Section 1.104-1(b) of the regulations states that section 104(a)(1) of the Code excludes from gross income amounts received by an employee under a workmen's compensation act or under a statute in the nature of a workmen's compensation act that provides compensation to the employee for personal injuries or sickness incurred in the course of employment. However, section 104(a)(1) of the Code does not apply to amounts received as compensation for an occupational injury or sickness to the extent that they are in excess of the amount provided in the applicable workmen's compensation act or acts.

The schedule of compensation in case of disability provided in section 15 of the Workmen's Compensation Law of New York State currently provides that an individual who is entitled to receive workmen's compensation for total permanent disability shall be paid 662/3 percent of the average weekly wages during the continuance of such total disability.

Sections B18-4.0 and B19-4.0 of the Administrative Code of the City of New York, as amended, states that the pension provided thereby for policemen and firemen, respectively, are paid only if the retirement of the policeman or fireman is occasioned by his total permanent disability, and the disability that occasioned the retirement arose out of and was incurred in the actual performance of his duties. Furthermore, these questions are determined by an examination of the individual as prescribed by law.

The Court of Appeals of New York held that a policeman injured while on duty at the precinct police station was not entitled to the benefits of the workmen's compensation law. Cornelius Ryan v. City of New York, 126 N.E. 350 (1920). However, this decision was cited by the corporation counsel for the City of New York in support of an opinion dated June 11, 1947, wherein it was concluded that pension payments made to members of the fire department who are injured in line of duty are in the nature of and in lieu of workmen's compensation.

In view of the foregoing, it is held that the pension received by a former member of the police department (or fire department) of the City of New York, pursuant to the provisions of subdivision a.1 of section B18-4.0 (or B19-4.0) of the Administrative Code of the City of New York, as amended, is in the nature of and in lieu of workmen's compensation.

Inasmuch as these payments are made pursuant to a special law providing for such special payments in lieu of workmen's compensation, they are not subject to the limitations provided in section 1.104-1(b) of the regulations (to the effect that the exclusion does not apply to amounts received as compensation for an occupational injury or sickness to the extent that they are in excess of the applicable workmen's compensation act or acts). Revenue Ruling 59-269, C.B. 1959-2, 39.

Accordingly, it is held that the full amount of the pension received by a former member of the police department (or fire department) of the City of New York, pursuant to subdivision a.1 of section B18-4.0 (or B19-4.0) of the Administrative Code of the City of New York, as amended, is excludable from gross income under section 104(a)(1) of the Internal Revenue Code.

A lump-sum amount received by a retiree pursuant to the provisions of subdivision a.1-a of section B18-4.0 or B19-4.0 is a return of the employee's own contribution and is, therefore, excludable from his gross income. However, if the retiree elects to be paid such amounts in the form of an annuity which is the actuarial equivalent of his contributions, the annuity payments will be treated in accordance with the annuity rules provided in section 72 of the Code.

I.T. 3877 is superseded, since the position set forth therein is restated under current law in this Revenue Ruling.

/1/ Prepared pursuant to Rev. Proc. 67-6, C.B. 1967-1, 576.