Saturday, May 30, 2009
The court highlighted that CIGNA improperly relied on the opinion of Dr. John Mendez, its in-house internal/occupational medicine physician, because he “obviously lacks the necessary familiarity or training with the nature of fatigue and multiple sclerosis”. The court ruled that CIGNA “had little reason to disregard the opinions of McNally’s treating neurologist in favor of Mendez’ opinion.”
Besides reliance on the Mendez opinion, the court held that CIGNA’s “bias is apparent from other evidence as well.” However, I want to point out that CIGNA knew its reliance on Mendez was improper because it was chastised for doing the same in Alfano v. CIGNA, 2009 WL 222351 (S.D.N.Y. Jan 30, 2009).
In Alfano, I represented the claimant, who primarily suffered from a back problem. For more information about Alfano see my prior blogs or the decision which is available on my web site. In Alfano, CIGNA also rejected the opinions of the treating specialists in favor of Mendez. Mendez’ entire analysis of Mr. Alfano’s claim, which consisted of hundreds of pages of medical records, was only two sentences.
If your LTD claim has been denied by CIGNA, make sure that you consult with an attorney as soon as possible. Once you have exhausted your appeals with CIGNA it may be too late to allow a court to review additional evidence that reveals CIGNA’s bias.
Thursday, May 28, 2009
Note: Social Security disability benefits and retirement benefits are treated the same for income tax purposes. SSI benefits are not subject to income tax.
- How should I handle income taxes on my retroactive lump sum payment of disability benefits?
- How much of my ongoing Social Security disability benefit is subject to income tax?
- What about my attorney fee for the disability appeal — is it deductible?
- I owe most of the Social Security lump sum to a long term disability carrier, so how do I avoid double taxation?
Lowering the tax impact of a lump sum. Congress has provided a special election allowing a client to take advantage of the tax exempt base amount for each of the retroactive years represented in a Social Security lump sum. [I.R. Code §86(e); see I.R.S. Publication 915] In most cases, this special election will be desirable, because it enables the taxpayer to offset the lump sum with a multiple of base amounts, described below. Also, the election removes the need to amend prior tax returns.
SSA-1099. Social Security is required to send each benefit recipient an SSA-1099 by February 1 of the following year, specifying how much of the Social Security benefit received in the lump sum was really a payment for some prior year or years. The 1099 also lists the attorney fee. These SSA-1099 forms are often inaccurate, and the taxpayer must use award notices to double check the 1099.
Income Tax on Social Security Benefits.
The Basic Rule. Up to 50% of Social Security benefits are taxable if total “provisional income” (adjusted gross income, tax-exempt interest and one half of Social Security benefits) exceeds a base amount: $25,000 for single taxpayers and $32,000 for married taxpayers filing jointly. At this level, taxes are payable on the lesser of (1) 50% of Social Security benefits received, or (2) one half of the difference between provisional income and the applicable base amount. Fortunately, this is the end of the income taxation picture for most recipients of disability benefits.
The Second Tier. A second tier of income tax - reaching up to 85% of Social Security benefits received - kicks in (1) for single taxpayers with provisional income over $34,000, (2) for married taxpayers filing jointly with provisional income over $44,000, and (3) for all married taxpayers who file separate returns, but do not live apart.
For these second-tier categories, income taxes are payable on the lesser of (A) 85% of Social Security benefits or (B) the total of (1) 85% of the difference between provisional income and the applicable adjusted base amount ($34,000/$44,000), plus (2) the lesser of (a) half the benefits or (b) $4,500 (for singles / $6,000 (for married couples filing jointly). The adjusted base amount for married persons filing separately but living together is zero; taxes are payable on the lesser of 85% of benefits or 85% of provisional income.
Attorney Fee Deduction. If a taxpayer discovers that some of the Social Security lump sum - when added to regular benefits received in the same year - turns out to be taxable, the attorney fee may be deducted from income, but only to the same extent that Social Security is taxed. For example, if a taxpayer paid tax on 50% of SSA benefits received, the taxpayer may deduct half of the attorney fee paid or incurred during the same year. [IRS Revenue Ruling 87-102] The taxpayer faces the burden of filing an itemized return, of course, and this limited deduction is further subject to the “2% of adjusted gross” ceiling on miscellaneous itemized deductions.
Worker’s Compensation Reduction. Social Security disability may be reduced for worker’s compensation and other public disability benefits. Oddly, the amounts deducted are included as benefits received for purposes of income tax. In effect, state worker’s compensation is rendered taxable in an amount equal to the Social Security reduction, but only to the extent that Social Security is taxable for the year. [I.R. Code §86(d)(3)]
Auxiliary [child or spouse] benefits. Benefits are included in the taxable income of the person who has the legal right to receive them. For example, a child’s benefits are added to the child’s other income (if any) to determine taxability, even though the benefits are paid on the parent’s earnings record. The child receives a separate SSA-1099.
Income Tax Withholding. Voluntary Tax Withholding (VTW) from Social Security benefit income will help some taxpayers avoid quarterly estimated tax payments or an onerous lump sum due by April 15th. To begin or modify a withholding request, submit completed IRS Form W-4V to a local Social Security office. The available withholding rates are 7, 10, 15 or 27 percent. The form is posted on the Social Security web site: www.ssa.gov/taxwithhold.html
LTD reimbursement. What if the taxpayer used all or part of a Social Security back payment to reimburse a long-term disability carrier? Special tax relief is available under §1341 of the Internal Revenue Code, again avoiding the need to amend a prior tax return. See IRS Publication 525. If the repayment to the LTD carrier is under $3,000, the taxpayer gets a deduction on the current year’s tax return. For repayments over $3,000, the taxpayer chooses either the deduction or a tax credit for the excess tax paid in the prior year. A subtle tax issue to watch: LTD reimbursements to the carrier also cause “phantom” taxable income in some cases, due to the separate 1099 forms issued for the year by SSA and by the carrier.
Other Tax Notes.
Deductions for the Self-Employed. Since the self-employed pay all of their Social Security and Medicare taxes, these workers receive a Social Security tax deduction and an income tax deduction at tax time, designed to achieve parity with the employed, who do not pay FICA or income tax on the value of the employer's FICA tax payment. For the Social Security tax deduction, the self-employed deduct 7.65% of net earnings before computing the tax at 15.3%. For the income tax deduction, 50% of the net social security tax liability (after applying the Social Security tax deduction above) is deducted from gross earnings as a business expense.
Tax Liens and Social Security. To collect delinquent taxes, the IRS is authorized by the Taxpayer Relief Act of 1997 to impose an administrative offset against disability or retirement benefits. 26 USC 6334(c). The offset provision applies to delinquent income taxes, corporate withholding and FICA withholding falling within the 10-year look back range of the law.
The collection is 15% per month, with no income exemptions or set asides. There are no collections from children's benefits, from benefits already being reduced to collect a Social Security overpayment, or from SSI benefits.
For concurrent (Social Security and SSI) beneficiaries, 15% of the Social Security benefit will be taken, with no corresponding increase in SSI for the month. Couples jointly liable for a tax debt will lose 30% of their Social Security income during the collection period.
Note that beneficiaries do have the right to appeal the accuracy of the debt, to offer a compromise lump sum, to request repayment at a slower rate, and to seek a hardship exemption. These rights are administered by the IRS, not Social Security. Debt collection activity should stop while the beneficiary seeks this relief.
The elderly and disabled incur income tax liability from a surprising array of sources, including self-employment efforts, the taxable portion of Social Security benefits as detailed above, emergency withdrawals from IRAs, gains from the early and unplanned sale of investments, and damage awards that include lost wages. The vast majority of this population incurred the tax liability unexpectedly, and without adequate resources to cover the debt. These beneficiaries now face the loss of critical Social Security income through a tax lien, and affected individuals should be encouraged to contact the Taxpayer Advocate Service, a remarkably helpful and independent entity within the IRS: 1-877-777-4778 (toll free), or www.irs.gov/advocate.
Thursday, May 21, 2009
At my client’s first hearing, ALJ Hoppenfeld saw no need for a medical expert (“ME”) to testify. The only evidence that arguably contradicted the disability opinions of the claimant’s rheumatologist, pain management specialist, internist, podiatrist and nurse practitioner was the report of Kautilya Puri, a consultative examiner (“CE). Therefore, I requested that CE Puri be subpoenaed for cross-examination, but ALJ Hoppenfeld claimed the subpoena was not issued due to “office error”.
During the hearing I advised ALJ Hoppenfeld that CE Puri was not board certified. When ALJ Hoppenfeld expressed surprise, I offered to submit written confirmation that CE Puri lacked board certification, but ALJ Hoppenfeld said it was not necessary. I advised ALJ Hoppenfeld in writing that the American Board of Medical Specialties (“ABMS”) confirmed that CE Puri is not a board certified internist. In fact, I advised the ALJ the ABMS stated that CE Puri is not board certified in any field of medicine. I wrote ALJ Hoppenfeld that she could confirm CE Puri’s lack of certification for herself by calling the ABMS at (847) 491-9091, or by checking the ABMS website www.abms.org. ALJ Hoppenfeld never took any step to verify CE Puri’s certification status.
During the first hearing, ALJ Hoppenfeld indicated that she was unsure if she could accept the opinions of the treating specialists because she needed to see if medical tests supported them. In Brunson v. Barnhart, 2002 WL 393078 (E.D.N.Y. Mar. 14, 2002) the court explained in detail why ALJ Hoppenfeld is not permitted to reject a treating doctor’s opinion about the disabling effects of FMS for lack of diagnostic testing. Nonetheless, relying on CE Puri’s report, and ignoring Brunson, ALJ Hoppenfeld denied the claimant’s application.
Rather than the typical two year wait, the Appeals Council rejected ALJ Hoppenfeld’s decision in only two months. The Appeals Council suggested a VE at the new hearing, but saw no need for an ME. Nonetheless, ALJ Hoppenfeld insisted that, not one, but two experts testify, a psychiatrist and a neurologist. In Tempesta v. Astrue, 2009 WL 211362 (E.D.N.Y. Jan 28, 2009), the court reversed ALJ Hoppenfeld for refusing to give controlling weight to treating physicians by effectively requiring objective evidence beyond the clinical findings necessary for a diagnosis of FMS under established medical guidelines of the American College of Rheumatology 1990 Classification. Thus, Hoppenfeld knew that rheumatologists, not psychiatrists or neurologists, were the appropriate specialist for evaluating FMS. I wrote ALJ Hoppenfeld that her doing so showed that she intended to disregard the treating physician rule just as she had done in Kearney v. Astrue, 2008 WL 270525 (E.D.N.Y. July 11, 2008), where the court called ALJ Hoppenfeld’s failure to follow the treating physician rule “baffling,” and added that “for reasons defying comprehension, [you] chose to repeat the same error” after he previously remanded the case to her.
Since the only evidence that arguably contradicted the reports of the treating doctors was the CE Puri report, I again asked Hoppenfeld to issue a subpoena so I could cross-examine CE Puri. To avoid another “office error,” I submitted my subpoena request by fax and ERE with confirmations. Yet, once again, Hoppenfeld failed to explain her failure to issue the subpoena.
At last week’s hearing, even though I had made it clear the claimant is not asserting disability due to a mental disorder, ALJ Hoppenfeld repeatedly tried to get the claimant to say that she had a history of abuse or mental disorder, which the claimant refused to do. ALJ Hoppenfeld then had ME Winkler testify, who out of the blue asserted that FMS is really a manifestation of people with a history of mental illness, and then said that the psychiatrist would discuss that further. Incredibly, ALJ Hoppenfeld refused to allow me to cross examine ME Winkler regarding his testimony, and terminated the hearing. In other words, since Hoppenfeld knew that the medical evidence showed the claimant’s FMS was disabling, she tried to argue it was not FMS, but a mental disorder.
Because the Queens ALJs have a history of conveniently losing hearing recording when they don’t like the testimony, I asked the Queens ODAR for a copy of the hearing immediately after it was terminated. I was told a copy would be mailed to me the following day. I called the Queens ODAR 5 days later, but was told I never requested a copy, so I then arranged to pick it up that day. However, later that day, I was told the person who makes the hearing recordings was out. Then the next day I was told that for some inexplicable reason the hearing was not recorded. The hearing tape failure was no accident.
Saturday, May 16, 2009
It is extremely important to make sure that the insurance company that is acting as a claims administrator realizes that you know your disability claim will not be governed by ERISA. ERISA provides significant advantages for insurers if they have discretionary, such as no jury trial trials, no punitive damages, and their decisions are overturned only for an abuse of discretion. When insurance companies cannot hide behind ERISA’s unlevel playing field they are much more reluctant to reject a claim.
Last year, after the court ruled that my client’s long term disability (“LTD”) claim was exempt from ERISA under the Church Plan exception, CIGNA demanded that the Court order a mediation to try to settle the case. Today, First Reliance approved an application I filed for a claimant who was a teacher.
The teacher’s SPD for the LTD plan stated that ERISA applied. However, I notified Reliance that the teacher’s school district constituted a political subdivision, and therefore, was exempted from ERISA as a governmental entity. Facing immediate state court litigation with unfettered discovery, and the right to a jury trial, the teacher’s application was immediately approved. I doubt that the application would have been approved as rapidly, if approved at all, had I not made clear why Reliance’s decision was not governed by ERISA.
Wednesday, May 6, 2009
I submitted an OTR for a 49 year old former youth coordinator who was hit by a car. Despite serious injuries, and against his doctors’ advice, the claimant returned to work. I requested an OTR for the period of time before the claimant resumed working. While the OTR was rejected, it still yielded benefits.
ALJ Weiselthier was assigned the hearing, and he had arranged for a medical expert to appear. I was summoned to speak with the ALJ before the claimant arrived. I was advised that since the medical expert would confirm the contentions raised in the OTR regarding the claimant’s medical condition the case would be approved. After a short hearing on the record, the claimant’s application was officially granted. I told this to the claimant as I bumped into him entering the hearing office when I was leaving.