Rev. Rul. 83-91

1983-1 C.B. 38.

                       Internal Revenue Service
                                 Revenue Ruling

        DISABILITY BENEFITS;  MARYLAND STATE TEACHER'S RETIREMENT SYSTEM

                            Published: June 27, 1983

26 CFR 1.104-1: Compensation for injuries or sickness

  Disability benefits;  Maryland State Teacher's Retirement System.  A school teacher who is entitled to receive either workmen's compensation for a work- related injury or a larger disability retirement allowance under a statute in the nature of a workmen's compensation act, and who elects the disability retirement allowance, is permitted to exclude the entire retirement allowance from gross income under section 104 of the Code.

ISSUE

  Whether a school teacher who is entitled to receive either workmen's compensation for a work-related injury or a disability retirement allowance from the Maryland State Teacher's Retirement System, and who elects the larger disability retirement allowance, is permitted to exclude the entire retirement allowance from gross income under section 104(a)(1) of the Internal Revenue Code.

FACTS

  The taxpayer, a school teacher, was accidentally injured while at school.  The Maryland Workmen's Compensation Commissioner determined that the taxpayer suffered a permanent partial disability and would be entitled to workmen's compensation of $40x weekly. The taxpayer also applied to the Maryland State Teachers' Retirement System (the "System") for "accidental disability retirement," as described by the System.  The System found that the taxpayer was permanently and totally incapacitated for further employment as a result of an accident occurring in the actual performance of duty and awarded accidental disability retirement in an amount that exceeded the amount of workmen's compensation to which the taxpayer was entitled.  The System's award was not computed with reference to the taxpayer's age, length of service, or prior contributions.  Not being entitled under state law to both workmen's compensation and disability retirement, the taxpayer elected to receive the larger retirement benefit in lieu of a $40x weekly payment from the Workmen's Compensation Commission.

LAW AND ANALYSIS

  Section 104(a)(1) of the Code provides, in pertinent part and with certain exceptions not here applicable, 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 Income Tax Regulations states in part that section 104(a)(1) of the Code excludes from gross income amounts that are received under a workmen's compensation act or under a statute in the nature of a workmen's compensation act that provides compensation to employees for personal injuries or sickness incurred in the course of employment.  It further states that 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.

  If disability payments are made pursuant to a statute in the nature of a workmen's compensation act, those payments are not subject to the limitation in section 1.104-1(b) of the regulations that provides that the exclusion is disallowed to the extent that the amounts received are in excess of the amounts receivable under the applicable workmen's compensation acts.  The limitation in the regulation merely denies exclusion under section 104(a)(1) to the extent that amounts received are in excess of the amount provided by the regular workmen's compensation act or by a statute in the nature of a workmen's compensation act, whichever is the basis for exclusion in the particular case. It does not apply to limit the exclusion of payments made under a statute in the nature of a workmen's compensation act to the amount allowable under the state's general workmen's compensation statute.  See Rev. Rul. 59-269, 1959-2 C.B. 39;  Rev. Rul. 72-45, 1972-1 C.B. 34.

  Maryland Annotated Code, article 101, section 21(a)(2) includes each school district of the State within the list of employers subject to Maryland's workmen's compensation law.  Article 101, section 33(c) of the Maryland Annotated Code provides, in part, as follows:

    Wherever by statute, charter, ordinances, resolution, regulation or policy adopted thereunder, whether as part of a pension system or otherwise, any benefit or benefits are furnished employees of employers covered under section 21(a)(2) of this article  ... the benefit or benefits when furnished by the employer shall satisfy and discharge pro tanto or in full as the case may be, the liability or obligation of the employer and the Subsequent Injury Fund for any benefit under this article.

A regulation of an employer that provides for occupational disability payments and that is issued pursuant to statutory authority may qualify as a statute in the nature of workmen's compensation.  See Dyer v. Commissioner, 71 T.C. 560 (1979), acq. in result, 1979-2 C.B. 1.  Hence, a Maryland school district's regulations or rules relating to occupational disability retirement and promulgated pursuant to the statutory authority granted under Maryland Annotated Code, article 101, section 33(c), is a statute in the nature of a workmen's compensation act for purposes of section 1.104-1(b) of the regulations.

  Disability retirement benefits are in the nature of workmen's compensation benefits if they are paid because of illness stemming from the workmen's employment.  See Neill v. Commissioner, 17 T.C. 1015 (1951), acq., 1952-1 C.B. 3 (applying section 22(b)(5), the predecessor of section 104(a)(1) of the Code). Benefits for accidental disability retirement were awarded under the Maryland State Teacher's Retirement System upon the System's determination that the applicant was permanently and totally incapacitated for further employment as a result of an accident in the actual performance of duty.  The disability retirement benefits were not computed with reference to the applicant's age, length of service, or prior contributions.

  Since the taxpayer's occupational disability retirement payments were made under a statute in the nature of a workmen's compensation act, section 1.104-1(b) of the regulations does not apply to limit the exclusion of those payments to the amount allowable under Maryland's general workmen's compensation act.  The disability retirement payments are excludable in full from the taxpayer's gross income under section 104(a)(1) of the Code.

HOLDING

  Where a Maryland school teacher receives occupational disability retirement benefits pursuant to "a statute in the nature of a workmen's compensation act" and those benefits are in the "nature of workmen's compensation," they are excludable in full from gross income under section 104(a)(1) of the Code.  The excludable amount is not limited to the amount provided in the general workmen's compensation act.

EFFECT ON OTHER RULINGS

  Rev. Rul. 59-269, 1959-2 C.B. 39, and Rev. Rul. 72-45, 1972-1 C.B. 34, are modified to the extent they state that payments made pursuant to a law providing for special payments in lieu of workmen's compensation are not subject to the language in section 1.104-1(b) of the regulations to the effect that section 104(a)(1) of the Code does not apply to amounts received as compensation for an occupational injury or sickness to the extent they are in excess of the amount provided in the applicable workmen's compensation act or acts.  The language in the regulation does apply to payments made under such a law but operates merely to deny exclusion under section 104(a)(1) to the extent the amounts received are in excess of the amount provided by that law.  It does not limit the exclusion to the amount provided by the state's regular workmen's compensation act.

Rev. Rul. 83-91, 1983-1 C.B. 38.