Rev. Rul. 59-269

Advice has been requested whether pensions received by former members of the police and fire departments of Honolulu, or band of any county of Hawaii, retired pursuant to section 6-138 of chapter 6, Part III, of the Revised Laws of Hawaii, 1955, because of occupational injury or sickness caused in or induced by the performance of the duties of their positions are excludable from gross income under section 104(a) of the Internal Revenue Code of 1954.

Section 6-138 of chapter 6, Part III, of the Revised Laws of Hawaii, 1955, Vol. I, provides, in part, as follows:

* * * Whenever any member of the police force, fire department or band of any county shall, on examination by the medical board provided for in section 6-134 be found to be disabled physically or mentally because of any injury received or disease contracted while in the performance of his duty so as to render necessary his retirement from the service on the police force, fire department or band of the county, then the board of trustees shall authorize a monthly payment to such person from the pension fund of a sum equal to not less than one-quarter nor more than three-quarters of his average monthly compensation for the ten years (or less, if he has had less than ten years) of his service * * * immediately preceding his adjudication of disability by the medical board * * *

Section 97-25(a) of chapter 97, Part II, Revised Laws of Hawaii, 1955, supra , relative to workmen's compensation benefits, contains the following statement:

* * * Where the injury causes total and permanent disability for work, the employer shall pay the injured employee a weekly compensation equal to sixty-six and two-thirds per cent of his average weekly wages, but not more than $50 nor less than $18 a week. * * *

Section 6.144 of chapter 6, Part II, of the Revised Laws of Hawaii, 1955, supra , relating to benefits in lieu of other payments states, in part, as follows:

* * * The benefits * * * set forth in this part Part III shall be in lieu of any or other compensation payable to a member of a police force, fire department, or band or any of his dependents under or on account of chapter 97, or any other claim or demand against the county by whom such member is employed. However, such member of the police force, fire department or band or his dependents may, at his or their election, wavie the benefit provided for in this part and in lieu thereof claim any compensation or benefits that would otherwise be payable to such member or his dependents under chapter 97, or in any manner authorized by law. * * *

Section 104(a) of the Code provides that, except in the case of amounts attributable to (and not in excess of) deductions allowed under section 213 of the Code (relating to medical etc., expenses) for any prior taxable year, gross income does not include (1) amounts received under workmen's compensation acts as compensation for personal injuries or sickness; (2) the amount of any damages received (whether by suit or agreement) on account of personal injuries or sickness; (3) amounts recevied through accident or health insurance for personal injuries or sickness (other than amounts received by an employee, to the extent such amounts are attributable to contributions by the employer which were not includible in the gross income of the employee, or are paid by the employer); and (4) 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 or in the Coast and Geodetic Survey or the Public Health Service.

Section 1.104-1(b) of the Income Tax Regulations states that section 104(a)(1) of the Code excludes from gross income amounts which are received by an individual under a workmen's compensation act or under a statute in the nature of a workmen's compensation act which provides compensation to the employees for personal injuries or sickness incurred in the course of employment. Section 104(a)(1) of the Code also applies to compensation which is paid under a workmen's compensation act to the survivor or survivors of a deceased employee. However, section 104(a)(1) of the Code does not apply to amounts which are 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.

In I.T. 3281, C.B. 1939-1 (Part I), 97, it was held that benefits received under the Federal Employees' Compensation Act, 5 U.S.C. 751, were not subject to Federal income tax because of the stated purposes and provisions of the Act. The Act is similar in many respects to the workmen's compensation acts of the various states.

This was followed in Webster R. Fry et ux. v. United States , 72 Fed.Supp. 407, wherein the court held that payments received by the police and firemen of the District of Columbia, pursuant to Title 4, Chapter 5 of the District of Columbia Code, 1940, for disability incurred in the line of duty, was a counterpart of the benefits paid under the Federal Employees' Compensation Act and therefore excludable from income under section 22(b)(5) of the Internal Revenue Code of 1939, now substantially section 104(a) of the 1954 Code. The provisions of the Act involved in the fry case were in many respects similar to the act of the instant case. A member so permanently disabled through injuries received or disease contracted in line of duty as to incapacitate him for performance of duty could be retired upon a determination by the Board of Surgeons that he was so disabled. Such member was entitled to relief as determined by the Retiring and Relief Board, not to exceed 50 percent of his salary.

The provision 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 amount provided in the applicable workmen's compensation act or acts, is a reiteration of the rule laid down in Revenue Ruling 103, C.B. 1953-1, 20. It was there held that payments in excess of workmen's compensation under a differential payment plan, which was not in itself a plan of accident or health insurance within the purview of section 22(b)(5) of the 1939 Code and which was not paid pursuant to a court-sanctioned agreement which, according to state statute, was in lieu of workmen's compensation, are includible in the employee's gross income unless it can be shown that the payments were made under an agreement in satisfaction of a tort or tort-type liability other than a liability under a workmen's compensation act. The limitation therefore does not apply to statutes in the nature of workmen's compensation which give recovery in lieu of or supplemental to workmen's compensation which may be in excess of that received under the ordinary workmen's compensation act.

Accordingly, it is held that pensions received by former members of the police and fire departments of Honolulu, Hawaii, or band of any county of Hawaii, retired pursuant to section 6-138 of chapter 6, Part III, of the Revised Laws of Hawaii, 1955, supra , because of an occupational injury or sickness caused in or induced by the actual performance of the duties of their positions are in the nature of and in lieu of workmen's compensation, and such pensions are excludable from gross income under section 104(a) of the Code.