WASHINGTON, D.C. -- Collecting disability payments has cost Stephen J. Hayden of Carson City $129,078.
A U.S. Tax Court opinion issued here ruled that the former chief executive officer of a computer software company had to pay that amount in additional 1997-98 taxes because his company's health-care plan paid the same benefits, regardless of the severity of the disability.
The court's decision wasn't a total loss for Hayden. Judge Julian I. Jacobs overturned an Internal Revenue Service demand for $32,270 in penalties for the two-year period.
Saul A. Bernick of Minneapolis, Hayden's tax attorney, said Friday that he would have to discuss the findings of the 12-page opinion before reaching a decision on whether to appeal. The opinion was released Tuesday.
"We've got 90 days to think about it," Bernick said. "I'll have to discuss it with him first. I'm sure he's not interested in any publicity."
Hayden, chief executive officer of Calera Recognition Systems of Sunnyvale, Calif., from 1991 to 1994, has 90 days after the date of the decision to file for a U.S. Court of Appeals review of the case.
In the opinion, Jacobs found that under the tax code payments from a disability plan that Calera had contracted with UNUM Life Insurance Co. Of America in 1991 did not qualify in Hayden's case for tax exclusion.
Calera, which merged with Caere Corp. Of Los Gatos, Calif., in 1995, made optical character reader software that converted scanned or faxed material into computer-usable text. ScanSoft, Inc. of Peabody, Mass., bought Caere in 1998.
According to Jacobs' opinion, Hayden received disability benefits for "a severe neurological impairment, a personal injury or illness, that began in December 1994." The opinion did not describe the nature of Hayden's disability.
The opinion said that payments received as a result of an accident or health insurance benefits can be excluded from taxable income "only if paid by a plan that varies the amount of payment according to the type and severity of the injury suffered by the employee."
While the IRS and Hayden's attorneys agree he incurred a permanent loss that qualified for disability payments, they disagreed on whether the payments were computed so that they qualified for tax exclusion, the opinion said.
The opinion said that on June 19, 1997, UNUM paid Hayden a $237,886 lump sum then began paying him $9,333 in monthly disability benefits, which totaled $286,931 in 1997 and $115,597 in 1998.
The petition said Hayden lived in Carson City when he filed a petition in tax court in 2001 appealing the IRS ruling.
