                         T.C. Memo. 1997-278



                     UNITED STATES TAX COURT



         WILTON EARL AND DOROTHY M. KEEL, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 20679-95.                      Filed June 18, 1997.



     Wilton Earl Keel and Dorothy M. Keel, pro se.

     Diane D. Helfgott, for respondent.



                          MEMORANDUM OPINION


     TANNENWALD, Judge:     Respondent determined a deficiency in

petitioners' Federal income tax in the amount of $10,925.00 for

the taxable year 1992.    The issue for decision is whether

petitioners may exclude from gross income under section
                               - 2 -

104(a)(2)1 amounts received from petitioner Dorothy M. Keel's

employer upon termination of her employment on the ground that

such amounts represented damages received on account of personal

injury.

     This case was submitted fully stipulated under Rule 122.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   Petitioners resided in

Beltsville, Maryland, at the time they filed their petition.

Background

     Petitioner Dorothy M. Keel (Mrs. Keel) was employed by

International Business Machines Corporation (IBM) until her

termination in 1992.   In 1992, IBM terminated thousands of its

employees pursuant to a corporate restructuring plan.    Mrs. Keel

received a lump-sum payment of $40,411.21 from IBM in 1992 (the

lump-sum payment) in connection with her termination.    The amount

of the lump-sum payment was based on length of her service and

salary.

     On June 15, 1992, Mrs. Keel signed a General Release and

Covenant Not to Sue (the release) as a condition for the sums and

benefits, including the lump-sum payment, she received pursuant

to the terms of the Modified and Extended Individual Transition



1
    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 -

Option Program (ITO-II Program) offered by IBM.    Pertinent

sections of the release read as follows:

          In exchange for the sums and benefits which you
     will receive pursuant to the terms of the * * * [ITO-II
     Program], Dorothy M. Keel (hereinafter "you") agrees to
     release * * * [IBM] from all claims, demands, actions
     or liabilities you may have against IBM of whatever
     kind, including but not limited to those which are
     related to your employment with IBM or the termination
     of that employment. * * * You also agree that this
     release covers, but is not limited to, claims arising
     from the Age Discrimination in Employment Act of 1967,
     as amended, Title VII of the Civil Rights Act of 1964,
     as amended, and any other federal or state law dealing
     with discrimination in employment on the basis of sex,
     race, national origin, religion, disability, or age.
     You also agree that this release includes claims based
     on theories of contract or tort, whether based on
     common law or otherwise. This release does not include
     your vested rights, if any, in the IBM Retirement Plan,
     which survive unaffected by this release.

               *     *    *    *       *   *   *

          3.   This release does not waive any claims that
               you may have which arise after the date you
               sign this release.

               *     *    *    *       *   *   *

          6.   In the event of rehire by IBM or any of its
               subsidiaries as a regular employee, you
               understand that IBM reserves the right to
               require repayment of a prorated portion of
               the ITO-II Program payment. The amount of
               repayment will be based on the number of
               weeks off the IBM payroll compared with the
               number of weeks' salary used to calculate
               your payment.

     On April 15, 1993, petitioners filed their 1992 Federal

income tax return.   They included the amount of the lump-sum

payment in the amount reported on Form 1040, line 7 (Wages,

salaries, tips, etc.).
                              - 4 -

     Petitioners thereafter filed an Amended U.S. Individual

Income Tax Return for the taxable year 1992 (the amended return),

which respondent received on February 23, 1994.   On that return,

petitioners claimed that the lump-sum payment was nontaxable.

Petitioners enclosed with the amended return a copy of the

release and an article included in a newsletter entitled the ITO

Newsletter, circulated among IBM employees subject to

restructuring.

     The article reads as follows:2

       An update to the Private Letter Ruling with the
     question "Is the income from the ITO taxable or not?".
       Section 104(a) (2) [sic] of the Internal Revenue Code
     of 1986 states that , "except as other wise provided,
     gross income means all income from whatever source
     derived." Accordingly, the Supreme Court has held that
     any accession to wealth is presumed to be gross income,
     unless the taxpayer can demonstrate that it fits into
     one of the specific exclusions created by other
     sections of the Code.
       Code Sections 104(a) provides in relevant part that
     "gross income does not include.....(2) the amount of
     any damages received (whether by suit or agreement and
     whether as lump sums or periodic payments) on account
     of personal injuries or sickness."
       Based on this information and the agreement IBM and
     ITOers signed the settlement amount should be
     nontaxable.
       It seems one reader of the ITOers Newsletter
     submitted his taxes and included Form # 8275. This
     form is the one to use to request the lump sum payment
     be declared nontaxable. The reader included the
     separation release papers from IBM and guess what? He
     got his money back!
       You might want to file an update to your taxes.



2
   The excerpt as reproduced retains the original spelling and
punctuation.
                               - 5 -

     Petitioners' claim for refund as set forth in the amended

return was allowed on March 22, 1994.   Petitioners subsequently

received the refund.

     Petitioners were notified on or before November 15, 1994,

that respondent had determined that the lump-sum payment was

taxable income to them for the taxable year 1992.   Respondent

issued the notice of deficiency for that year on July 21, 1995.

Discussion

     Initially, we deal with several arguments advanced by

petitioners which are essentially directed to the proposition

that respondent should be estopped from requiring them to pay

tax on the lump-sum payment.   These arguments are as follows:

(1) in addition to relying on the information contained in the

newsletter article, prior to filing the amended return, Mrs. Keel

was advised by IBM's Payroll Department and by an IRS

representative that the lump-sum payment was not taxable; (2) the

refund was consistent with that advice; (3) petitioners have

acted in good faith and respondent should do the same and not

seek to negate the refund, which respondent should have reviewed

more carefully and not made based on respondent's claim that the

lump-sum payment is taxable; and (4) other similarly situated co-

workers have not been contacted to return the refunds they

obtained and respondent should not be allowed selectively to

enforce the tax laws.
                               - 6 -

     Leaving aside any question as to the sufficiency of

petitioners' assertion by way of the stipulated, self-serving

testimony of Mrs. Keel as to what she was told by an IRS

representative, such erroneous advice does not bar the correction

by respondent of a mistake of law on the ground of equitable

estoppel.   Automobile Club of Michigan v. Commissioner, 353 U.S.

180 (1957); Miller v. United States, 949 F.2d 708, 712 (4th Cir.

1991); Norfolk S. Corp. v. Commissioner, 104 T.C. 13, 59-61

(1995), supplemented by 104 T.C. 417 (1995).

     Likewise, the granting of a refund does not preclude

respondent from issuing a notice of deficiency.3   Gordon v.

United States, 757 F.2d 1157, 1160 (11th Cir. 1985); Beer v.

Commissioner, 733 F.2d 435, 437 (6th Cir. 1984), affg. T.C. Memo.

1982-735; Warner v. Commissioner, 526 F.2d 1, 2 (9th Cir. 1975),

affg. T.C. Memo. 1974-243.   The taxpayers in Gordon v. United

States, supra, and in Warner v. Commissioner, supra, made the

same argument as petitioners; i.e., that respondent should not be

able to make refunds and then demand repayment.    To this the

Courts of Appeals replied:   "Alas, the Commissioner, confronted

by millions of returns and an economy which repeatedly must be

nourished by quick refunds, must first pay and then look.      This

necessity cannot serve as the basis of an 'estoppel.'"     Gordon v.


3
   Respondent also has the option of pursuing recovery of an
erroneous refund in a civil action brought within, generally, 2
years of making the refund. Secs. 7405, 6532(b).
                                - 7 -

United States, supra at 1160 (quoting Warner v. Commissioner, 526

F.2d at 2).

     In a similar vein, the fact that respondent may have treated

other taxpayers differently has generally been considered

irrelevant.    Davis v. Commissioner, 65 T.C. 1014, 1022 (1976).

Some selectivity in enforcement is not in itself a Federal

constitutional violation of due process or of equal protection

where the selection is not deliberately based on an unjustifiable

standard such as race, religion, or other arbitrary

classification.    Baltimore Gas & Elec. Co. v. Heintz, 760 F.2d

1408, 1418-1419 (4th Cir. 1985); Penn-Field Indus., Inc. v.

Commissioner, 74 T.C. 720, 722-723 (1980) (citing Oyler v. Boles,

368 U.S. 448 (1962)).   No evidence of selectivity based on any

unjustifiable standard is reflected in the record herein.

      We now turn to petitioners' claim that, in any event, the

lump-sum payment is excludable from gross income under section

104(a)(2) because Mrs. Keel suffered personal injury in signing

the release.   As petitioners put it:

     I [Mrs. Keel] filed an amendment tax return to my [her]
     1992 Tax. "Code Sections 104(a) provides in relevant
     part that 'gross income does not include ....(2) the
     amount of any damages received (whether by suit or
     agreement and whether as lump sums or periodic
     payments) on account of personal injuries or
     sickness'". Based on this information and the
     agreement I [Mrs. Keel] signed with IBM, the settlement
     should be nontaxable income.

          My [Mrs. Keel's] amendment was based on the
     "personal injuries" statement. When I [Mrs. Keel]
     signed that ITO Waiver with IBM, I indeed suffered
                                 - 8 -

     "personal injury". I had worked for the company for
     almost twenty three years, more than half my life at
     that time period, and have not rebound[ed] either
     financially or personally since that time period.

     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 are 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
     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
                               - 9 -

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

T.C. 396, 416 (1995), on appeal (8th Cir., March 13, 1996).

     Where damages are received pursuant to a settlement

agreement, the nature of the claim that was 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); Thompson v. Commissioner, 866 F.2d 709, 711 (4th Cir.

1989), affg. 89 T.C. 632 (1987); 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.

     Determination of the nature of the claim is factual.      Bagley

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

(1992).   If the settlement agreement lacks express language

stating what the settlement amount was paid to settle, then the

most important factor is the intent of the payor.   Knuckles v.

Commissioner, 349 F.2d 610, 612 (10 Cir. 1965), affg. T.C. Memo.

1964-33; Stocks v. Commissioner, supra at 10.

     The first requirement is the existence of a claim "based

upon tort or tort type rights".    Commissioner v. Schleier, supra

at    , 115 S. Ct. at 2166-2167.   The claim must be bona fide,

but not necessarily valid, i.e., sustainable.   Taggi v. United

States, 35 F.3d 93, 96 (2d Cir. 1994); Robinson v. Commissioner,

102 T.C. at 126; Stocks v. Commissioner, supra at 10.   In this
                               - 10 -

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 intent of the payment.

     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, supra; Getty v. Commissioner, 91 T.C.

160, 175-176 (1988), affd. as to this issue and revd. on other

issues 913 F.2d 1486 (9th Cir. 1990).   The record contains no

evidence upon which an allocation could be based.

     The release in this case is the same as that in Webb v.

Commissioner, T.C. Memo. 1996-50, and essentially the same as

that in Sodoma v. Commissioner, T.C. Memo. 1996-275, on appeal

(5th Cir., Aug. 14, 1996).   By its terms, Mrs. Keel released IBM

from liability for both contract and tort claims, but not

including claims arising after the date of signature.   The

release makes no allocation of the lump-sum payment.    As did the

taxpayer in Webb v. Commissioner, supra, petitioners argue that
                              - 11 -

the release itself was the cause of the injury.   Petitioners have

presented no evidence as to any claims Mrs. Keel may have had,

whether or not filed with her employer.   While we can surmise

that Mrs. Keel suffered from the prospect of being unemployed, in

order to decide the issue before us, we must ascertain the intent

of her employer in making the lump-sum payment to her.

     The amount of the lump-sum payment was calculated on a

number of weeks of service and Mrs. Keel's salary.    The release

states that if Mrs. Keel were rehired by IBM, she could be

required to repay some portion of the lump-sum payment based on

the number of weeks off the IBM payroll compared with the number

of weeks' salary used to calculate the lump-sum payment.   As in

Sodoma v. Commissioner, supra, and Webb v. Commissioner, supra,

the lump-sum payment herein appears to have been severance pay

rather than a payment for personal injury.   Severance pay, just

like the pay it replaces, is taxable income.

     Finally, we note that aside from the assertion in their

memorandum brief in respect of the claimed personal injuries, see

supra pp. 7-8, we are furnished with no clue as to the nature of

the claimed injuries.   It goes without saying that an assertion

on brief is not evidence.   Moreover, even if we were to treat it

as the equivalent of testimony by Mrs. Keel, it would not be

sufficient to satisfy petitioners' burden of proof.   See Kurowski

v. Commissioner, 917 F.2d 1033, 1036 (7th Cir. 1990), affg. T.C.

Memo. 1989-149 (where the Court of Appeals specifically found
                             - 12 -

similar after-the-fact testimony insufficient to sustain

excludability under section 104(a)(2)).

     We hold that the lump-sum payment is not excludable from

gross income under section 104(a)(2).   Accordingly,

                                   Decision will be entered

                              for respondent.
