Rev. Rul. 80-84

ISSUE

Are amounts received under Los Angeles, California, Charter Art. XVII, section 183 by beneficiaries of deceased members of the Los Angeles fire and police departments excludable from gross income under section 104(a)(1) of the Internal Revenue Code?

FACTS

Los Angeles, California, Charter Art. XVII, section 183 states:

Whenever any member of the Fire or Police Department shall die as a result of any injury received during the performance of his duty, or from sickness caused by the discharge of such duty, or after retirement, or while eligible to retirement from such department on account of years of service, then an annual pension shall be paid in equal monthly installments to his widow or child or children, or dependent parent or parents, in an amount equal to one-half (1/2) of the average monthly rate of salary assigned to the ranks or positions held by such member during the three years immediately preceding the time of his death or the date of his retirement from active duty in such department. . . .

Charter section 182 states:

Whenever any member of the Fire or Police Department shall become so physically or mentally disabled by reason of bodily injuries received in, or by reason of sickness caused by the discharge of the duties of such person in such department as to render necessary his retirement from active service, such member shall be retired and, during his lifetime (if the disability or sickness does not sooner cease) shall be paid . . . a pension. . . .

The Charter section 182 pension is computed by a formula that does not refer to age or years of service and the benefits are provided to a class that is restricted to employees with service-incurred disabilities. These benefits are therefore payments for those disabilities. Thus, Charter section 182 is a statute in the nature of a workmen's compensation act. See Rev. Rul. 72-44, 1972-1 C.B. 31.

LAW AND ANALYSIS

Section 104(a)(1) of the Code provides 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 provides 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 employees for personal injuries or sickness incurred in the course of employment. Section 104(a)(1) also applies to compensation that is paid under a workmen's compensation act to the survivor or survivors of a deceased employee. Section 104(a)(1) does not apply to a retirement pension or annuity to the extent that it is determined by reference to the employee's age or length of service even though the employee's retirement is occasioned by occupational injury or sickness.

A statute authorizing benefits for employees' survivors may qualify as a statute in the nature of a workmen's compensation act if it requires as a prerequisite to payment a determination that the cause of the employee's death was service-related. See Riley v. United States, 156 F. Supp. 751 (Ct. Cl. 1957); Rev. Rul. 72-291, 1972-1 C.B. 36. The Charter section 183 provisions authorizing benefits to survivors of members dying from service-connected injury or sickness (the service-connected death provisions) require such a determination as a prerequisite to payment. Thus, the benefits are in the nature of workmen's compensation. Accordingly, if a taxpayer can establish that the taxpayer's Charter section 183 benefits are received under the service-connected death provisions, those benefits will qualify for exclusion under section 104(a)(1) of the Code. The fact that such a taxpayer could also have qualified for the same benefits under another provision of section 183 will not prevent the section 104(a)(1) exclusion from applying. See Neill v. Commissioner, 17 T.C. 1015 (1951), acq., 1952-1 C.B. 3; Rev. Rul. 74-582, 1974-2 C.B. 34.

Benefits paid to employees' survivors may also qualify as paid under a statute in the nature of a workmen's compensation act if those benefits are part of the compensation for service-related injury or illness and thus are a mere continuation of employees' lifetime section 104(a)(1) benefits. If a Los Angeles fireman or policeman suffers a service-related injury or illness necessitating the employee's retirement, the compensation for that injury or illness is two-fold--1) because of that injury, the employee may retire under Charter section 182 and receive lifetime benefits under that section, and 2) because that injury qualifies the employee for retirement, the employee's survivors qualify for Charter section 183 benefits under the provision of Charter section 183 authorizing survivors' benefits whenever any member dies after retirement (the retirement provision). Benefits paid under this provision to survivors of employees who were retired under section 182 at the time of death are thus part of the compensation for the employee's service-related injury or illness. These benefits therefore are treated as a continuation of the employee's lifetime section 104(a)(1) benefits.

HOLDING

Charter section 183 benefits are excludable from gross income under section 104(a)(1) of the Code if the recipient can establish either 1) that the benefits are received under the service-connected death provisions, or 2) that the benefits are received under the retirement provision and that the employee on account of whose death the benefits are paid was retired under Charter section 182 at the time of that employee's death.