## Facts

- Albert and Carol Tucker filed a joint federal income tax return for 1973.
- Carol Tucker was a New York public school teacher.
- In 1973, she participated in a 21-day teachers’ strike that violated New York law.
- Under state law and district policy, the district reduced a striking teacher’s pay at twice the regular daily rate for each strike day; $1,509 was withheld from Carol Tucker’s salary under this rule.
- The district issued a 1973 Form W-2 that included the $1,509 in “wages, tips, or other compensation,” despite the withholding.
- Albert Tucker asked the district either to pay the withheld $1,509 or to issue a corrected W-2; the district refused.
- On their return, the Tuckers reported the $1,509 as wage income (consistent with the W-2) and deducted the same amount as an employee business expense.
- The Commissioner issued a notice of deficiency, disallowing the deduction as a nondeductible fine or penalty under I.R.C. § 162(f) and treating the $1,509 as taxable wages.

## Issues

1. Whether $1,509 withheld from Carol Tucker’s salary under New York law for strike participation was includable in the Tuckers’ 1973 gross income.
2. If includable, whether the $1,509 was deductible as an ordinary and necessary business expense or barred by I.R.C. § 162(f) as a fine or similar penalty paid to a government for violation of law.

## Decision

- The Tax Court held the $1,509 withheld from Carol Tucker’s salary was not includable in gross income for 1973.
- Because the amount was not income, the court did not reach whether it was deductible or barred by I.R.C. § 162(f).
- The deficiency was to be recomputed consistent with the holding.

## Legal Principles

- Gross income includes amounts actually received or constructively received; an amount withheld under a statutory pay-reduction mechanism is not income if the taxpayer never receives it and never obtains control over it.
- A sanction that operates as a reduction of compensation may be treated, for federal tax purposes, as a decrease in wages rather than a payment out of wages, even if state law characterizes it as a penalty.
- Information reporting (such as a W-2) does not control federal income tax treatment when it conflicts with the transaction’s substance.

## Conclusion

The Tax Court concluded that a strike-related statutory reduction in a teacher’s pay did not create taxable wages where the withheld amount was never actually or constructively received, making any deduction analysis under I.R.C. § 162(f) unnecessary.


Tucker v. Commissioner, 69 T.C. 675 (1978)