On February 9, 2017, the U.S. Tax Court released its opinion in Schieber v. Commissioner, T.C. Memo 2017-32, ruling that the lump-sum value of CalPERS pension benefits should not be included in asset calculations to determine a taxpayer’s ability to immediately pay tax on canceled debt income.
The IRS has traditionally argued that these pension benefits are a legitimate asset. Service Center Advice 1998-039 states that “a taxpayer’s interest in a pension plan or other assets that are exempt from creditor’s claims should be included as assets of the taxpayer.” However, the Court argued that because a taxpayer’s ability to elect to receive the lump sum of CalPERS benefits expires 30 days after receipt of the first monthly payment, the total value of the pension benefit is not actually available to contribute to tax payments.
To read the full opinion in Schieber v. Commissioner, click here.