The opinion of the court was delivered by: VAUGHN R. WALKER
Plaintiffs Lloyd and Donna Nielsen filed suit to recover approximately $ 1,200 as an overpayment of their 1981 federal income tax. The basis of their claim is that they improperly included $ 5,165 in excludable disability income on their 1981 income tax return. The government has moved to dismiss or, in the alternative, for summary judgment.
At all relevant periods Lloyd Nielsen was a probation officer with the adult division of the San Mateo County Probation Department. Beginning on October 26, 1981 and ending February 16, 1992, Mr. Nielsen was out of work due to heart by-pass surgery. During this period he was compensated, via sick leave, at his regular rate of pay of $ 2,300 per month. He was paid a total of $ 5,165 for the nine weeks he was out during 1981. In April of 1982, Mr. Nielsen filed a workmen's compensation claim, seeking a determination that he was temporarily totally disabled during his fifteen week recovery period.
On February 26, 1986, Judge Duncan Davidson of the Workmen's Compensation Appeals Board entered an award of disability in favor of Mr. Nielsen. The award states that he was temporarily totally disabled during the fifteen-week recovery period. Plaintiff was awarded $ 175 per week as disability indemnity for that period. This appears to be in addition to the sick pay plaintiff had received for the nine-weeks he was out of work in 1981 ($ 5,165).
Because Mr. Nielsen was determined to be disabled during his surgery recovery, he claims that the salary he was paid as sick leave was really disability payment. Further, he claims that the disability pay ($ 5,165) should not have counted as income and therefore he is entitled to a refund of the taxes paid on the disability pay.
A Memorandum of Understanding between the Probation and Detention Association (Teamsters Local 856) and San Mateo County states:
(1) Job Incurred disability Leave With Pay
(A) Definition: Disability leave with pay is an employee's absence from duty with pay because of disability caused by illness or injury arising out of and in the course of employment which has been declared to be compensable under the Workers' Compensation Law. Only permanent or Probationary employees occupying permanent positions are eligible for disability leave with pay.
(B) Payment: Payment of disability leave shall be at the base pay of the employee and shall be reduced by the amount of temporary disability indemnity received pursuant to Workers' Compensation Law.
Plaintiffs state that pursuant to this agreement San Mateo County reinstated Mr. Nielsen's sick leave after the Worker's Compensation determination and deemed the money paid in sick leave to be disability pay.
On April 9, 1986, plaintiffs sent a claim for refund to the IRS seeking a refund from their 1981 taxes in the amount of $ 1,072, the amount of taxes they paid on the money that was formerly deemed sick pay and later deemed disability pay. The IRS disallowed the claim. A requested appeal ...