Detective's Vacation And Sick Time Not Excluded From Taxable Income

This post was originally published on Forbes Apr 22, 2015

Clarence William Speer was in Tax Court recently over the $53,513 of unused vacation and sick time that he was paid when he retired in 2009.  Now I have these rules about who I root for in Tax Court cases.  Generally it is the taxpayer, unless he is being really lame, which is not that unusual.  Some people get special consideration in my view, though.  In Mr. Speer's case, I give him extra credit for having retired from a really cool job.  What job is that, you ask?

Yes.  Mister Speer was Detective Speer of the LAPD.  So he has me rooting for him.

The argument he made was rather a clever one.  During his decades of service with the LAPD, he had had some periods of temporary disability during which his salary continued and he accrued benefits like vacation and sick days.  The argument that he was making was that the vacation and sick days earned during those periods of disability should be excluded as disability pay under Section 104.  I thought it was a pretty good argument.  The Tax Court was less enchanted with it.

During each of his disability leaves of absence, Mr. Speer received periodic payments of his base salary and he accrued fringe benefits, such as vacation time and sick leave, that would translate into additional payments to him only after his disability leave of absence ended. Indeed, if a covered employee were to forgo the vacation time and the sick leave accrued during a disability leave of absence (as Mr. Speer claims he did), decades might pass until the employee retired and cashed out the forgone benefits. Mr. Speer's accrual of vacation time and sick leave while on temporary disability leave did not provide him with an immediate benefit that he could use to support himself while on such leave. The fringe benefit represented by the accrual was, thus, fundamentally different from the normal temporary disability allowance payable under the Workers' Compensation Act and for which the continuation of his base salary under LAAC sec. 4.177 substituted. See id. The Workers' Compensation Act does not provide for any payments after the period of disability ends and, in fact, instructs that payments shall stop or be amended upon a finding that the disability has terminated or been diminished. See Cal. Lab. Code sec. 5803 (West 2011); Sogov v. Indus. Accident Comm'n, 9 P.2d 592, 593 (Cal. Dist. Ct. App. 1932) (sustaining a finding that disability terminated on specified date and so compensation also terminated as of that same date). Thus, any payments Mr. Speer received after his temporary disability ended cannot be part of the City's substitute for the Workers' Compensation Act.

The other problem that Mr. Speer had was that he had not substantiated how much of his vacation and sick time had been accrued while on disability.

Petitioners have not presented any evidence that clearly shows how many hours, if any, he accrued during those absences. Officers are limited to 800 hours of sick leave and are paid for any additional accrued sick leave. In order to determine whether on retirement Mr. Speer had accrued but unused leave from periods of temporary disability we would need to know his entire sick leave history. The record is devoid of this information, and it is therefore impossible to determine whether any of the 800 hours were accrued during periods of disability leave.
Petitioners similarly cannot demonstrate that any of the 541 hours of unused vacation leave were accrued during his leaves of absence. Officers are limited to banking 200 hours of vacation leave per year and a total of 400. Mr. Speer had 541 hours of vacation leave at retirement because he had not yet lost vacation leave accrued during 2009. Just as with the sick leave, we would need to know Mr. Speer's vacation history in order to determine whether any of the unused leave was accrued during his leaves of absence. Again, the record does not contain this information.

Good luck figuring that out, although, maybe being a detective and all he might have been able to.

It's too bad it didn't work out, but it was a nice try.

What is coming?

I had really fallen behind on my reading of tax decisions and rulings. During the last week in March and the first work in April, I had to, you know, actually work quite a bit, so I could take off for my Appomattox trip.  There have been quite a few Kent Hovind pieces, none of which have been individually Forbes worthy, but I will probably give you a round-up pretty soon.  Excitement is mounting as his retrial on May 18 approaches.  The Hovindicators are getting somewhat displeased with me and think I should move to communist China.  

There was an interesting Tea Party decision, some passive activity decisions and an alimony case among others, so I hope to be able to post on every business day for a while and hasten the coming of  my Forbes millennium, this summer.  One of the ironies of tax blogging is that during the period when regular people are most interested in reading about taxes, those of us who prepare returns are the most occupied.  I'm still hoping to be the first tax blogger to give up his day job, but that is not on the horizon right now.