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November 19, 1965

Dorothy Keefe, Plaintiff
United States of America, Defendant

Edmund Port, District Judge.

The opinion of the court was delivered by: PORT

Memorandum-Decision and Order

EDMUND PORT, District Judge:

 Plaintiff sues for the sum of $1157.85 paid by her as income taxes for the years 1958 through 1962 inclusive, together with interest. It is her contention that the reported income upon which said taxes were paid was erroneously included by her in gross income. She claims that said sums were excludible under Section 105(d) of the Internal Revenue Code of 1954, as "payments in lieu of wages for a period during which the employee is absent from work on account of personal injuries or sickness". 26 U.S.C. § 105(d).

 There is no factual dispute. The case was submitted upon a stipulation of facts.

 For each of the calendar years 1958 through 1962, the plaintiff included in her tax returns and paid a tax upon the amounts in dispute. Timely claims for refund were filed and rejected by the Internal Revenue Service, after which this suit was timely brought, pursuant to the provisions of Section 1346 of Title 28, U.S.C.

 The plaintiff, born May 20, 1901, worked for the New York Telephone Company from March 22, 1922 until February 11, 1955 on which date she suffered an injury, totally disabling her and declared to be permanent by her physician on May 7, 1956. As a result of the permanent total disability, the plaintiff received benefits under the provisions of the "New York Telephone Company's Plan for Employees' Pension, Disability Benefits and Death Benefits" (hereinafter "Plan"), from the time of her injury, throughout the entire period at issue here. The stipulation of facts does not disclose how the benefits from origin of the disability until December 31, 1957 were designated under the Plan. The payments upon which the tax is contested during the years 1958 through 1962 were known under the Plan as a "Service Pension". Under the Plan, an employee suffering total disability as a result of sickness or injury, with certain exceptions, not pertinent, having fifteen or more years of employment, "shall upon retirement by reason of such disability be granted a pension, which pension is designated a 'disability pension'; provided, that if, at the time of such retirement, the employee is qualified for a service pension * * *, a service pension shall be granted instead of a disability pension. A disability pension shall continue so long as the employee is prevented by such disability from resuming active service with the company." The plaintiff could become qualified for a service pension with the approval of the "Committee" *fn1" established by the Plan, at any time after fifty years of age (May 20, 1951), and before compulsory retirement at age sixty-five (May 20, 1966); or upon her request at age fifty-five (May 20, 1956) without the approval of the "Committee". (See Appendix).

 The Internal Revenue Code of 1954, the regulations and rulings issued under it (See Appendix) set forth the blueprint for the inclusion and exclusion of income derived as a result of health disability. Because the tools used to draw the blueprint are words, some of its lines are more blurred and indistinct than they might be were a more exact tool available.

 The pension payments, upon which the tax is disputed, should be included in gross income under Section 61(a) of the Internal Revenue Code of 1954 (26 U.S.C. § 61(a)) unless statutory authority exists for its exclusion. The statute upon which the claimant must rely is Section 105(d) of the Internal Revenue Code of 1954 (26 U.S.C. § 105(d)). Are the amounts received by the plaintiff as pension payments during the years 1958 to 1962 inclusive, "payments in lieu of wages for a period during which the employee is absent from work on account of personal injuries or sickness"? The question is further refined by the regulations issued under authority of the Revenue Act. Section 1.105-4(a)(3)(i) provides that the exclusion provided by 26 U.S.C. § 105(d) does not apply to payments received by an employee after reaching retirement age. 26 C.F.R. 1.105-4(a)(3)(i). The validity of the regulation is not questioned. Accordingly, the issue narrows itself down to the single question of whether or not, the plaintiff has established that at the time of the receipt of the pension payments in question, she had not reached retirement age within the meaning of the statute and regulations.

 Three cases and two Revenue Rulings *fn2" are cited by the parties as determinative of this narrow issue, and no others have been found by the court.

 The stipulated facts justify finding, in addition to the facts heretofore set forth, that the plaintiff would have continued working until age sixty-five had she not been injured; that the sole reason for the plaintiff's retirement was her permanent and total disability; that the employer permits the employees in actual practice to continue working until age sixty-five barring disability; that approximately fifteen percent of the women employees eligible to retire in the years 1960 and 1962, at age fifty-five, actually retired.

 The plaintiff and defendant both rely on Rev. Rul. 57-76, (See Appendix) to determine if the plaintiff had reached "retirement age" within the meaning of Treasury Regulation Section 1.105-4(a)(3)(i). (See Appendix). The Revenue Ruling, as applied to this case, fixes "retirement age" as the lowest age under the Plan at which the employee can retire without the employer's consent, unless such early retirement results in benefits reduced on an actuarial basis. Such early retirement does not constitute retirement age under the ruling unless it corresponds with the employer's "actual practice".

 The plaintiff could retire at her option without the consent of the employer more than one and one-half years before the period in question. This would require that the pension payments be included in her taxable income, under the Revenue Ruling, unless retirement at that time would result in an actuarial reduction of her pension or, unless retirement at that age did not conform with the "actual practice" of the employer.

 The plaintiff contends that retirement at fifty-five would result in benefits actuarily reduced. There is no support in the facts for this conclusion.

 Commissioner v. Winter, supra, the plaintiff finds as decisive of her right to exclude the pension payments from income. The plaintiff in that case, as here, received a pension by reason of disability after the age at which he might have retired, but before the age at which he was obliged to retire. The question of an actuarial reduction did not affect Mr. Winter since under the Plan covering him, he like Miss Keefe, because of his early retirement received a smaller pension than he would have received later, but it had not been diminished on an actuarial basis. The evidence in Winter showed that for a period of six years before and three years after the year in question, the percentage of eligible employees who retired at the early optional date, varied from approximately six percent to thirteen percent. On this evidence, the Tax Court and the Court of Appeals found that it was not the practice for employees to retire early. This employee practice "necessarily agreed to by the company" excluded the pension payment from income since "retirement is postponed" until the compulsory retirement age of sixty-five.

 The defendant contends that the holding of Winter is erroneous and should not be followed since, "by a process of judicial alchemy, [it] transformed the practice of employees into a practice of the employer ". Pointing out that the only statistical evidence offered by the plaintiff related to the year 1962, (the last year in suit) and a rough calculation for part of the year 1960, the defendant argues that even under the rationale of Winter it should prevail because the plaintiff's proof is inadequate to bring the plaintiff within the holding of Winter. The government further contends that evidence that a relatively small number of employees retired at age fifty-five would not be controlling. Miss Keefe being fifty-six and one-half years old at the beginning of the first year in controversy, the government contends that she must show that she had not reached retirement age between then and the end of the last year in question. The defendant loses sight of the fact that the statistical evidence is probative on the question of whether or not the early retirement age specified in the Plan is in conformity with the employer's actual practice.

 Conroy v. Commissioner of Internal Revenue, supra, and Corkum v. United States, supra, because of dissimilarity of facts, neither approve of Winter nor cast any doubt upon its soundness.

 The government urges that the holding of Rev. Rul. 58-544, 1958-2 Cum. Bull. 43 which is "on all fours" with the case at bar, be adopted as determinative here. The Revenue Ruling construing a plan identical in all material respects with the Telephone Company Plan holds the normal retirement age for an employee, such as the plaintiff, is reached at the time she attains fifty-five years of age with twenty years of service. Consequently, benefits received from a Disability Pension converted into a Service Pension after age fifty-five is not excludible from income. "[Such] a ruling does not commit [this court] to any particular interpretation of the law." Miller v. Commissioner of Internal Revenue, 327 F.2d 846, 850 (2 Cir., 1964). However, it is not necessary to argue with the ruling to hold, as I ...

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