                         T.C. Memo. 1996-276



                       UNITED STATES TAX COURT



    LESLIE R. FOSTER and MATTIE J. FOSTER, ET AL.,1 Petitioners v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



       Docket Nos. 19932-94, 19934-94,    Filed June 13, 1996.
                   10669-95.



       Leonard Lanny Leighton, for petitioners.2

       Joni D. Larson, for respondent.


                         MEMORANDUM OPINION

       TANNENWALD, Judge: Respondent determined the following

deficiencies in the 1993 Federal income taxes of Leslie R. Foster

1
  Cases of the following petitioners are consolidated herewith:
Charles W. Payne and Carole B. Payne, docket No. 19934-94; and
Wayne G. Smith and Marie Smith, docket No. 10669-95.
2
  Brief amicus curiae was filed by Neil D. Kimmelfield, on behalf
of Ball, Janik & Novack, who are counsel for other similarly
situated taxpayers.
(Leslie) and Mattie J. Foster (Mattie), Charles W. Payne

(Charles) and Carole B. Payne (Carole), and Wayne G. Smith

(Wayne) and Marie Smith (Marie):

                                     Docket No.       Deficiency

     Leslie and Mattie Foster        19932-94          $16,303

     Charles and Carole Payne        19934-94          $13,670

     Wayne and Marie Smith           10669-95           $9,675

     These consolidated cases are before us on respondent's

motion for summary judgment under Rule 121.3      The issue for

consideration is whether petitioners may exclude from gross

income, under section 104(a)(2), amounts received from their

employer in consideration for signing a general release

agreement.

     The disposition of a motion for summary judgment under Rule

121 is controlled by the following principles:      (1) The moving

party must show the absence of dispute as to any material fact

and that a decision may be rendered as a matter of law; (2) the

factual materials and the inferences to be drawn from them must

be viewed in the light most favorable to the party opposing the

motion; and (3) the party opposing the motion cannot rest upon

mere allegations or denials, but must set forth specific facts

showing there is a genuine issue for trial.     Rule 121; Brotman v.

Commissioner, 105 T.C. 141 (1995).

3
  Unless otherwise indicated, all statutory references are to the
Internal Revenue Code in effect for the year in issue, and all
Rule references are to the Tax Court Rules of Practice and
Procedure.
                                 - 3 -



     Respondent's motion is based on a stipulation of facts and

attached exhibits which are incorporated herein by this

reference.

     At the time the petitions were filed, Leslie and Mattie

Foster resided in San Antonio, Texas; Charles and Carole Payne

resided in Kissimmee, Florida; and Wayne and Marie Smith resided

in Loveland, Colorado.

     Prior to and during a portion of 1992, petitioners Leslie,

Mattie, Charles, and Wayne were employed by the United Services

Automobile Association (USAA).    In 1992, each of them

(hereinafter referred to as the participants) became eligible to

participate in USAA's Special Retirement Offer (retirement

program).    To participate in the retirement program, which

included the receipt of a single, lump-sum payment, each of the

participants was required to sign a Special Retirement Offer

Election Notification and General Release.    The release

agreements are identical but for the parties and the amounts of

the payments.

     The agreements provide in part as follows:

     [Name] acknowledges that this payment is solely in exchange
     for the promises in his/her General Release and is not
     normally available under company policy to employees who
     resign. [Name] further acknowledges that such payment does
     not constitute an admission by the Released Parties of
     liability or of violation of any applicable law or
     regulation.
                              - 4 -



          * * * [Name] agrees to release and discharge forever
     Released Parties from all causes of action, claims, demands,
     costs and expenses for damages which he/she now has, whether
     known or unknown, on account of his/her employment with USAA
     and its wholly owned subsidiaries and/or his/her retirement
     from employment with USAA and its wholly owned subsidiaries.
     His/her release includes, but is not limited to, any claims
     of discrimination on any basis, including race, color,
     national origin, religion, sex, age or handicap arising
     under any federal, state, or local statute, ordinance, order
     or law, including the Age Discrimination in Employment act,
     and any claim that the Released Parties, jointly or
     severally, breached any contract or promise, express or
     implied, or any term or condition of [Name]'s employment,
     and any claim for promissory estoppel arising out of
     [Name]'s employment with USAA and its wholly owned
     subsidiaries and any other issue arising out of his/her
     employment with USAA and its wholly owned subsidiaries
     and/or his/her retirement from such employment.

     Leslie and Mattie signed the agreement on September 29,

1992; Charles signed the agreement on October 28, 1992; and Wayne

signed the agreement on July 22, 1992.

     In addition to the releases, the parties have stipulated

that none of the participants had any preexisting claim of age

discrimination, or other unlawful discrimination, against USAA,

either formal or informal, written or oral, pending or inchoate,

at the time the releases were signed.

      In exchange for participating in the retirement program,

each of the participants received payment from USAA in 1993,

computed on the basis of time of service and rate of pay, in the

following amounts:
                               - 5 -



          Participant                   Amount

          Leslie                       $48,858
          Mattie                        14,300
          Charles                       53,055
          Wayne                         40,320

     In an informational document provided to the participants,

USAA refers to the lump-sum payments as "special transition pay",

and advised the participants that all applicable payroll taxes

would apply to the payments.   USAA reported the above amounts on

the participants' respective W-2 wage statements.

     Except as otherwise provided, gross income includes income

from all sources.   Sec. 61(a); Commissioner v. Glenshaw Glass

Co., 348 U.S. 426 (1955).   While section 61(a) is to be broadly

construed, statutory exclusions from income must be narrowly

construed.   Commissioner v. Schleier, 515 U.S.     , 115 S. Ct.

2159, 2163 (1995); Kovacs v. Commissioner, 100 T.C. 124, 128

(1993), affd. without published opinion 25 F.3d 1048 (6th Cir.

1994).

     Under section 104(a)(2), gross income does not include:

     the amount of any damages received (whether by suit or
     agreement and whether as lump sums or as periodic
     payments) on account of personal injuries or sickness.

     Section 1.104-1(c), Income Tax Regs, provides:

          (c) Damages received on account of personal
     injuries or sickness. * * * The term "damages
     received (whether by suit or agreement)" means an
     amount received * * * through prosecution of a legal
     suit or action based upon tort or tort type rights, or
                                 - 6 -



     through a settlement agreement entered into in lieu of
     such prosecution.

     Thus, an amount may be excluded from gross income only when

it was received both: (1) through prosecution or settlement of an

action based upon tort or tort type rights; and (2) on account of

personal injuries or sickness.     Commissioner v. Schleier, 515

U.S. at    , 115 S. Ct. at 2166-2167; Wesson v. United States, 48

F.3d 894, 901-902 (5th Cir. 1995); Bagley v. Commissioner, 105

T.C. 396, 416 (1995).

     Where damages are received pursuant to settlement

agreements, as is the case herein,4 the nature of the claims that

were the actual basis for settlement controls whether such

damages are excludable under section 104(a)(2).     United States v.

Burke, 504 U.S. 229, 237 (1992); Robinson v. Commissioner, 102

T.C. 116, 126 (1994), affd. in part, revd. in part 70 F.3d 34

(5th Cir. 1995).   "[T]he critical question is, in lieu of what

was the settlement amount paid?"     Bagley v. Commissioner, supra

at 406.



4
   In response to a concern of petitioners, we note that we
consider the release agreements to be settlements or settlement
agreements. See, e.g., Black's Law Dictionary at 1372 (6th ed.
1990) (defining "settle" as "A word of equivocal meaning; meaning
different things in different connections, and the particular
sense in which it is used may be explained by the context or the
circumstances"). In any event, whatever the semantical
description of the releases, the focus is on the actual terms of
the documents.
                                  - 7 -



     Determination of the nature of the claim is factual.     Bagley

v. Commissioner, supra; Stocks v. Commissioner, 98 T.C. 1, 11

(1992).   The most important element is the intent of the payor.

Robinson v. Commissioner, supra at 127.

     Essential to petitioners' ability to satisfy the first

requirement is the existence of claims "based upon tort or tort

type rights".   See supra p. 5.    The parties and the amicus curiae

have advanced extensive arguments as to whether such claims must

have been valid claims that were asserted prior to the

settlements.    We are satisfied that the only requirement is that

there be a claim which is bona fide, not necessarily valid, i.e.,

sustainable.    Taggi v. United States, 35 F.3d 93, 96 (2d Cir.

1994); Robinson v. Commissioner, supra at 126; Stocks v.

Commissioner, supra at 10.    In this connection, we note that we

have held that claims for potential future personal injuries do

not qualify for exclusion under section 104(a).     Roosevelt v.

Commissioner, 43 T.C 77 (1964); Starrels v. Commissioner, 35 T.C.

646 (1961), affd. 304 F.2d 574 (9th Cir. 1962).    Such holdings

imply that there must be an existing claim.    Moreover, while it

need not have been previously asserted, the absence of any

knowledge of the claim on the part of the employer-payor

obviously has a negative impact in determining the requisite
                                - 8 -



intent of the payment.5   Any problems in respect of these factors

are resolved in this case by the stipulation of the parties that

there was no preexisting claim based on age or other unlawful

discrimination.   See supra p. 4.

      Viewing the facts in the light most favorable to

petitioners, see Kroh v. Commissioner, 98 T.C. 383, 390 (1992),

it can be argued that the stipulations as to the absence of "pre-

existing claim[s]" leave open the possibility of claims of

discrimination based on the settlements themselves.   Such a

possibility has been adverted to in Webb v. Commissioner, T.C.

Memo. 1996-50, and Galligan v. Commissioner, T.C. Memo. 1993-605,

although neither of these cases accepted such an argument as a

ground for decision.   Whatever may be the merits of an assertion

of such a window of opportunity, we see no basis for giving it

any consideration herein.    Petitioners do no more than infer such

an approach; they do not set forth any supporting allegations of

fact in support thereof beyond their general assertions to which

we now turn our attention.

      Petitioners' basis for asserting that there are substantial

issues of fact that require denial of respondent's motion is that

they would offer the following evidence:




5
    See Foster v. Commissioner, T.C. Memo. 1996-26.
                                 - 9 -



     (1)   Each of the participants was over 40 years of age at

the time they executed the releases.

     (2)   The only consideration for the payments received from

USAA was the execution of the releases.

     (3)   USAA did not treat the payment as compensation for

retirement plan purposes.

     (4)   USAA was engaged in a systematic violation of the Age

Discrimination in Employment Act of 1967, Pub. L. 90-202, 81

Stat. 602 (current version at 29 U.S.C. secs. 621-634 (1988))

(ADEA), and age discrimination was its primary concern in

requiring the participants to sign the release agreements.6

     (5)   Each of the participants suffered personal injuries as

a result of the discrimination practices of USAA.

     The only specific factual assertion is that the participants

are within the age group, i.e., over 40, entitled to claim the

benefit of the ADEA.   However, it has been established that a

mere allegation of membership in a protected class is

insufficient to sustain a claim for exclusion under section

104(a).    See Starrels v. Commissioner, 35 T.C. at 648; Galligan

v. Commissioner, supra.     Petitioners' other assertions are

conclusory statements unsupported by specific facts as required



6
   Petitioners make no claim that the participants did not sign
the releases voluntarily as the documents recite.
                              - 10 -



by Rule 121.   See Abramo v. Commissioner, 78 T.C. 154, 164

(1982).

     Given the stipulations as to preexisting claims and in the

absence of specificity in petitioners' allegations, the

circumstances herein are such that respondent has made a prima

facie case that the requirements for exclusion under section

104(a) as enumerated by Commissioner v. Schleier, supra, have not

been satisfied.   The ADEA broadly prohibits arbitrary

discrimination in the workplace based on age.     Commissioner v.

Schleier, 515 U.S. at     , 115 S. Ct. at 2162.    Subject to

certain defenses, the ADEA makes it unlawful for an employer to

discharge any individual between the ages of 40 and 70 because of

such individual's age.   Id. at 2162.    The ADEA provides for two

types of damages: damages for lost wages and additional,

liquidated damages where the employer's actions were willful.       29

U.S.C. secs. 216(b), 626(b) (1994).     The ADEA does not permit a

separate recovery of compensatory damages for typical tort

remedies like pain and suffering or emotional distress.

Commissioner v. Schleier, 515 U.S. at       , 115 S. Ct. at 2162,

2165 n.6.

     Petitioners seek to draw comfort from footnote 6 in

Commissioner v. Schleier, 515 U.S. at       , 115 S. Ct. at 2165,

which suggests that, outside of the ADEA context, discrimination

can result in intangible personal injuries.    Petitioners do not
                               - 11 -



explain how they think they could benefit in this respect and, in

any event, fail to set forth sufficient facts in respect of any

such claim.

      In addition to the inadequacies of petitioners' position

previously discussed, we note that petitioners have the burden of

proving the specific amounts of the payments allocable to claims

of tort or tort-type damages for personal injuries.   Failure to

meet this burden results in the entire amount's being presumed

not to be excludable.   See Taggi v. United States, 35 F.3d at 96;

Getty v. Commissioner, 91 T.C. 160, 175-176 (1988), affd. as to

this issue, revd. on other issues 913 F.2d 1486 (9th Cir. 1990).7

But see Lane v. United States, 902 F.Supp. 1439 (W.D. Okla.

1995).    The releases make no allocation, and petitioners have set

forth no facts upon which they would rely to prove an allocation.

Indeed, the fact that the payments were based on time of service

and rate of pay, as well as USAA's description of the amounts as

"special transition pay", points in the direction of the payments

having been severance pay rather than a payment for personal

injury.   See Webb v. Commissioner, T.C. Memo. 1996-50.

      In sum, viewing the facts in a light most favorable to

petitioners, Kroh v. Commissioner, supra, we conclude that

respondent has made a prima facie case to support her motion for


7
    See also Whitehead v. Commissioner, T.C. Memo. 1980-508.
                              - 12 -



summary judgment and that petitioners have failed to come forward

with countervailing assertions having sufficient specificity to

cause us to hold that there is any material issue of fact which

requires a trial.   Under these circumstances, respondent is

entitled to summary judgment as a matter of law.   Rule 121(d);

Hibernia Nat. Bank v. Carner, 997 F.2d 94, 98 (5th Cir. 1993);

Abramo v. Commissioner, supra.8

                               Respondent's motions for summary

                          judgment will be granted and decisions

                          will be entered for respondent.




8
    See also Daniels v. Commissioner, T.C. Memo. 1994-591.
