                       T.C. Memo. 1999-374



                       UNITED STATES TAX COURT



   SALVATORE J. D’AMICO AND SHIRLEY E. D’AMICO, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 20087-97.             Filed November 10, 1999.



     Salvatore J. D’Amico, pro se.

     Stephen C. Best, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     CHIECHI, Judge:    Respondent determined a deficiency of

$10,695 in petitioners' Federal income tax for 1994.   The issue

for decision is whether petitioners are entitled for 1994 to
                                - 2 -


exclude certain amounts from their gross income under section

104(a).1   We hold that they are not.

                           FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

     Petitioners resided in Littleton, Colorado, at the time they

filed the petition.

     In August 1991, Pro Bakers Limited, a.k.a. Heinz Bakery

Products (Heinz Bakery Products or the Company), a corporation

affiliated with H.J. Heinz Company, hired petitioner Salvatore J.

D’Amico (Mr. D’Amico), who had had many years of experience in

the baking industry, to serve as the general manager of its plant

in Buffalo, New York.   During 1992, Heinz Bakery Products as-

signed additional duties and responsibilities to Mr. D’Amico. In

March 1993, Mr. D’Amico, who was still employed by the Company,

suffered a heart attack.

     On August 17, 1993, Paul Sneddon (Mr. Sneddon), the presi-

dent of Heinz Bakery Products, wrote a memorandum (Mr. Sneddon’s

August 17, 1993 memorandum) to Mr. D’Amico in order to memorial-

ize a meeting that had recently taken place between them. Mr.

Sneddon’s August 17, 1993 memorandum, inter alia, summarized Mr.

D’Amico’s career at Heinz Bakery Products and expressed dissatis-


     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year at issue. All
Rule references are to the Tax Court Rules of Practice and
Procedure.
                                 - 3 -


faction with certain aspects of Mr. D’Amico’s work performance

for the Company.

     On September 27, 1993, Mr. Sneddon wrote another memorandum

(Mr. Sneddon’s second memorandum) to Mr. D’Amico.    That memoran-

dum informed Mr. D’Amico that his employment with Heinz Bakery

Products was terminated, outlined the terms of a severance

package that the Company was offering to him (severance package),

and indicated that Mr. D’Amico had a period of 21 days within

which to sign a release form indicating his acceptance of the

severance package.   Mr. D’Amico suffered a second heart attack on

September 27, 1993, the date of Mr. Sneddon’s second memorandum

to him.

     In October 1993, Mr. Sneddon sent a letter to Mr. D’Amico in

which Mr. Sneddon indicated that, because of Mr. D’Amico’s

hospitalization as a result of his second heart attack, the

Company was extending until November 2, 1993, the period within

which Mr. D’Amico was permitted to sign a release form indicating

his acceptance of the severance package.

     In October 1993, Mr. D’Amico retained Thomas S. Gill (Mr.

Gill), an attorney, to represent him regarding the Company’s

termination of his employment.    On October 21, 1993, Mr. Gill

wrote a letter on behalf of his client Mr. D’Amico (Mr. Gill’s

October 21, 1993 letter) to Daniel Vogus (Mr. Vogus), an attorney

for Heinz Bakery Products.   Mr. Gill’s October 21, 1993 letter
                              - 4 -


informed Mr. Vogus that Mr. D’Amico “would like to receive

payment in the form of mental distress damages” and suggested

certain language to be included in any settlement agreement

entered into by Mr. D’Amico and the Company.    Mr. Gill’s October

21, 1993 letter also summarized Mr. Gill’s view of certain case

law under section 104 and concluded:

          Although I am sure that Heinz and Mr. D’Amico
     could never agree on whether his termination was wrong-
     ful, I have explained to you how it might be analyzed
     to show that it was. Under these circumstances, it
     seems to me that Heinz could in good faith enter into a
     settlement agreement with Mr. D’Amico which has the
     effect of making the settlement payment nontaxable to
     Mr. D’Amico. Please consider doing this.

     Mr. Gill and Mr. Vogus and other attorneys for Heinz Bakery

Products engaged in settlement negotiations regarding Mr.

D’Amico’s termination by the Company.    Those negotiations re-

sulted in an agreement (settlement agreement) that was executed

by Mr. D’Amico and Heinz Bakery Products on December 29, 1993,

and January 14, 1994, respectively.    Mr. D’Amico never filed a

lawsuit against Heinz Bakery Products.

     In the settlement agreement, (1) Mr. D’Amico asserted in

section 2, entitled “Employee Claim”, that his heart condition

was a factor that “made a difference” in the Company’s decision

to terminate his employment and further asserted that, as a

result of that termination, he suffered a heart attack; and
                               - 5 -


(2) the Company denied in section 3, entitled “No Company Wrong-

doing”, (a) that Mr. D’Amico’s heart condition was a factor in

its decision to terminate him, (b) that Mr. D’Amico suffered a

heart attack as a result of his termination by the Company, and

(c) that it committed any wrongdoing whatsoever in terminating

his employment.   Pursuant to the settlement agreement, the

Company agreed to pay Mr. D’Amico (1) $62,616.45 for mental

distress damages (in addition to $12,383.56 that previously had

been paid to him) and (2) $10,000 in consideration for the

covenants of secrecy contained in section 5 of the settlement

agreement (covenants of secrecy), the release contained in

section 7 of that agreement (release), and the other covenants

and obligations in the settlement agreement (other covenants and

obligations) to which Mr. D’Amico agreed.   The Company also

agreed under the settlement agreement (1) to pay the cost of Mr.

D’Amico’s medical benefits through September 1994 (i.e., $902)

and (2) to purchase the automobile that it was leasing from a

third person and that was being used by Mr. D’Amico (leased

automobile) and to transfer the ownership of that automobile to

Mr. D’Amico.

     The sections of the settlement agreement relating to the

covenants of secrecy and the release provided:

          5.   Secrecy.   Employee acknowledges that during
     his employment with the Company he learned, conceived,
     discovered, or invented ideas, inventions, improve-
                         - 6 -


ments, trade secrets, discoveries, formulas, recipes,
standards, processes, packaging, relating to products
that the Company or any of its Affiliates produced,
manufactured, sold, marketed, distributed, delivered,
or had developed or has in development by or for it
("Product Information"). Employee also acknowledges
that during his employment he learned certain informa-
tion regarding the business, organization, sales,
marketing, and distribution techniques and plans,
financial data, and other information regarding the
affairs of the Company and its Affiliates ("Company
Information"). All Product Information, whether of a
patentable nature or not, and all Company Information
shall be the sole and absolute property of the Company.
The Company shall be the sole and absolute owner of all
patent and other rights in connection with such Product
Information and Company Information. Employee at all
times shall keep all Product Information and Company
Information secret from everyone and shall not use for
his own purposes or disclose such matters to anyone
except to Company personnel and to others as the Com-
pany authorizes. Employee shall not divulge, furnish,
or make accessible any of the Product Information or
Company Information or anything relating to the same to
any competitor or other person, firm, or corporation
except when the Company authorizes him in writing to do
so. In addition, Employee shall not disparage the
Company or its Affiliates or take any action to damage
the business of the Company or its Affiliates. As used
in this Agreement, the term "Affiliates" shall mean any
company that controls, is controlled by, or is under
common control with the Company, including, but not
limited to, any direct or indirect subsidiary or divi-
sion of H.J. Heinz Company.

     6.   Acknowledgment. Employee acknowledges that:
          a.   It is reasonable and necessary for the
protection of the business and goodwill of the Company
and its Affiliates, for Employee to enter into this
Agreement, especially the confidentiality provisions.
          b.   The Company would suffer irreparable
injury if Employee breaches any of the provisions of
paragraph 5 of this Agreement.

     7.   Release.
          a.   Employee, on behalf of himself, his
heirs, estate, executors, administrators, successors,
                         - 7 -


and assigns fully waives, releases, and discharges the
Company and its Affiliates and their officers, direc-
tors, employees and agents (collectively the
"Releasees") from all actions, causes of action,
claims, judgments, obligations, damages and liabilities
of whatsoever kind and character, occurring from the
beginning of time to the date of this Agreement, in-
cluding, but not limited to, any such claims arising
out of or relating to Employee's employment, the termi-
nation of such employment, and any acts or events
involving him and the Company or any Affiliate.
          b.   Employee represents that he has not:
               (1) filed or joined any claim, com-
          plaint, charge, or lawsuit that is currently
          pending against any Releasee with any govern-
          mental agency, any court, or any other body;
               (2) assigned to any other person or
          entity any such claim, complaint, charge, or
          lawsuit; or
               (3) authorized any other person or
          entity to assert any such claim, complaint,
          charge, or lawsuit on his behalf.
          c.   Employee shall not:
               (1) file or join any claim, complaint,
          charge, or lawsuit against any Releasee with
          any governmental agency, any court, or any
          other body;
               (2) assign to any other person or en-
          tity any such claim, complaint, charge, or
          lawsuit; or
               (3) authorize any other person or en-
          tity to assert any such claim, complaint,
          charge, or lawsuit on his behalf.
          d.   Employee waives:
               (1) any claim for damages incurred at
          any time after the date of this Agreement
          because of the alleged continuing effects of
          any alleged acts or omissions involving any
          Releasee that occurred on or before the date
          of this Agreement; and
               (2) any right to sue for monetary or
          injunctive relief against the alleged contin-
          uing effects of past acts or omissions occur-
          ring before the date of this Agreement.

     8.   Extent of Release.   Employee understands and
agrees that the release and waiver set forth in para-
                              - 8 -


     graph 7 of this Agreement extends to all rights and
     claims of every nature and kind whatsoever, known or
     unknown, suspected or unsuspected, past or present,
     that existed before the execution of this Agreement,
     including, but not limited to, all rights and claims
     involving race discrimination, sex discrimination, age
     discrimination, or discrimination against persons with
     disabilities based upon Title VII of the federal Civil
     Rights Act of 1964, as amended, (42 U.S.C. §2000e et
     seq.), the federal Age Discrimination in Employment
     Act, as amended, (29 U.S.C. §621 et seq.) or the fed-
     eral Americans with Disabilities Act (42 U.S.C. §12101
     et seq.) or similar state or local statutes, or other-
     wise and all claims in tort or contract related to
     Employee's employment or to any acts or omissions of
     the Company involving Employee. THE RELEASE AND WAIVER
     SET FORTH IN PARAGRAPH 8 OF THIS AGREEMENT OR OTHERWISE
     IN THIS AGREEMENT DO NOT RELEASE OR WAIVE ANY CLAIM
     THAT MAY ARISE AFTER THE DATE EMPLOYEE EXECUTES THIS
     AGREEMENT OR ANY CLAIM FOR UNEMPLOYMENT COMPENSATION OR
     WORKERS' COMPENSATION BENEFITS.

     The sections of the settlement agreement relating to the

other covenants and obligations to which Mr. D’Amico agreed

provided:

          9.   Confidentiality of Termination.    Employee
     shall keep strictly confidential and shall not dis-
     close, directly or indirectly, to anyone, including,
     but not limited to, past, present, and future employees
     of the Company, any information concerning the settle-
     ment or the facts or circumstances that led to the
     termination of employment and this Agreement (“Termina-
     tion Information”). Employee shall also cause his
     representatives, agents, and attorneys to keep strictly
     confidential, and to agree with the Company:
               a.   not to disclose, directly or indirectly,
          to anyone, including, but not limited to, past,
          present, and future employees of the Company, any
          Termination Information; and
               b.   not to represent any past, present, or
          future employee of the Company with respect to
          termination of employment by the Company.
     The Employee retains the right to disclose the contents
     of this Agreement to the United States Internal Revenue
                              - 9 -


     Service or any state taxing agency for the purpose of
     supporting and defending the Employee’s income tax
     return or other tax return and further retains the
     right to present it in any administrative or judicial
     proceeding where it becomes relevant upon 10 days prior
     written notice to the Company of the Employee’s inten-
     tion to do so and an explanation of the need for doing
     so. In either case, Employee, at Employee’s expense,
     shall take such steps as the Company requests to obtain
     a confidentiality agreement, protective order, or other
     protection of the confidentiality of the contents of
     this Agreement.

        *       *       *       *       *       *       *

          17.   Indemnity.   As a further material induce-
     ment to the Company to enter into this Agreement,
     Employee shall indemnify and hold the Company and its
     Affiliates harmless from and against any and all loss,
     costs, damages, or expenses, including, but not limited
     to, attorneys’ fees, that the Company or its Affiliates
     incur arising out of any breach of this Agreement by
     Employee or the fact that any representation Employee
     makes in this Agreement was false when made.

     The settlement agreement also provided in pertinent part:

          18.   Non-Reliance.   Employee represents and
     acknowledges that in executing this Agreement he does
     not rely and has not relied upon any representation or
     statement by the Company or any of its Affiliates or
     their attorneys not set forth in this Agreement with
     regard to the subject matter, basis, or effect of this
     Agreement or otherwise.

          19.   Entire Agreement.   This Agreement sets
     forth the entire agreement between Employee and the
     Company on the subject matter of this Agreement and
     fully supersedes any and all prior agreements or under-
     standings between the Employee and the Company pertain-
     ing to the subject matter of this Agreement.

     The Company issued to Mr. D’Amico a Form W-2 for 1994 with

respect to its purchase of the leased automobile and its transfer

of that automobile to Mr. D’Amico during that year (Form W-2
                              - 10 -


relating to the leased automobile).    That Form W-2 showed "Wages,

tips, other comp." of $23,255.77, "Federal income tax withheld"

of $1,177.71, "Social security tax withheld" of $1441.86, and

"Medicare tax withheld" of $337.21.    The Company also issued one

or more Forms 1099 to Mr. D’Amico for 1994.   Those Forms 1099

showed additional income totaling $73,518,2 which equaled the sum

of the three payments that the Company had made to and on behalf

of Mr. D’Amico during that year under the settlement agreement

for (1) the mental distress damages ($62,616.45), (2) the cove-

nants of secrecy, the release, and the other covenants and

obligations ($10,000), and (3) the cost of providing medical

benefits to him ($902).   (We shall refer collectively to those

Forms 1099 as Forms 1099 relating to the settlement agreement.)

     Petitioners reported as income (1) on page 1, line 7 of the

joint Federal income tax return that they filed for 1994 (1994

return) the amount of “Wages, tips, or other comp.” shown in the

Form W-2 relating to the leased automobile3 and (2) on page 1,

line 21 of that return the total of the amounts of income shown

in the Forms 1099 relating to the settlement agreement.   However,



     2
      That total amount was rounded to the nearest dollar.
     3
      Petitioners rounded the amount shown in the Form W-2
relating to the leased automobile as “Wages, tips, other comp.”
(i.e., $23,255.77) to the lowest and nearest dollar. For
convenience, we shall do the same when referring to the amount of
income shown in that form.
                             - 11 -


petitioners also claimed on page 1, line 30 of their 1994 return

an adjustment to, i.e., a reduction of, income of $96,773.     The

amount of that adjustment equaled the aggregate amount of income

shown in the Form W-2 relating to the leased automobile and the

Forms 1099 relating to the settlement agreement that petitioners

reported in their 1994 return.   Petitioners attached Form 8275,

Disclosure Statement, to their 1994 return with respect to the

adjustment to income of $96,773 that they claimed in that return.

That form stated:

     WHILE SALVATORE D’AMICO WAS EMPLOYED BY PRO BAKERS
     LIMITED HE SUFFERED A HEART ATTACK. AFTER HE HAD
     RECOVERED AND RETURNED TO WORK, HIS EMPLOYMENT WAS
     TERMINATED UNDER CIRCUMSTANCES GIVING RISE TO THE
     INFERENCE THAT IT WAS BECAUSE OF HIS HEART ATTACK.
     SALVATORE D’AMICO AND PRO BAKERS LIMITED ENTERED INTO A
     SETTLEMENT AGREEMENT, A COPY IS ATTACHED HERETO. PRO
     BAKERS LIMITED PAID HIM $96,773.29 OF THAT SETTLEMENT
     IN 1994. THE IRS HAS DETERMINED THAT SUCH PAYMENT IS
     NOT TAXABLE UNDER SECTION 104 (a)(2) OF THE CODE AND
     REV RULE 93-88

     In the notice of deficiency issued to petitioners (notice),

respondent determined to reduce by $34,157 the adjustment to

income of $96,773 that petitioners claimed in their 1994 return

“because it has not been established that any amount more than

$62,616 met the requirements of Section 104".   As a result, in

the notice respondent increased petitioners’ taxable income for

1994 by $34,157.
                               - 12 -


                               OPINION

     Although respondent determined in the notice to increase

petitioners’ income by $34,157, respondent concedes in respon-

dent’s answering brief that $902 of that amount, which was the

cost to the Company of providing medical benefits to Mr. D’Amico

under the settlement agreement, is to be excluded from petition-

ers’ gross income under section 106(a).    Petitioners bear the

burden of showing that respondent erred in determining that the

remaining amount, i.e., $33,255, is to be included in their

taxable income for 1994.    See Rule 142(a); Welch v. Helvering,

290 U.S. 111, 115 (1933).

     The total amount of $33,255 that remains in dispute consists

of the following two components:   (1) $10,000 that the Company

paid Mr. D’Amico during 1994 in consideration for the covenants

of secrecy, the release, and the other covenants and obligations

to which Mr. D’Amico agreed ($10,000 payment) and (2) $23,255

that the Company paid to purchase the leased automobile, the

ownership of which it transferred to Mr. D’Amico pursuant to the

settlement agreement ($23,255 payment).4   Petitioners rely on


     4
      Petitioners advance as an alternative argument for the
first time on brief that in the event that the Court were to hold
against them under sec. 104(a), the fair market value of the
leased automobile, and not the amount that the Company paid to
purchase it, should be used in determining the increase in
petitioners’ income for 1994 that is attributable to that
automobile. In this regard, petitioners contend that the fair
                                                   (continued...)
                              - 13 -


section 104(a) to support their position that both the $10,000

payment and the $23,255 payment (collectively, settlement amounts

in dispute) are to be excluded from their income for 1994.

According to petitioners, those amounts were paid to Mr. D’Amico

to settle his claims against the Company for his physical inju-

ries.

     Section 61(a) provides the following sweeping definition of

the term “gross income”:   “Except as otherwise provided in this

subtitle, gross income means all income from whatever source

derived”.   Not only is section 61(a) broad in its scope, see

Commissioner v. Schleier, 515 U.S. 323, 328 (1995), exclusions

from gross income must be narrowly construed, see id.; United

States v. Burke, 504 U.S. 229, 248 (1992).

     Section 104(a)(2) on which petitioners rely provides that

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”.


     4
      (...continued)
market value of the leased automobile is $12,000. We reject
petitioners’ alternative contention. First, that contention was
raised for the first time on brief, and respondent did not have
the opportunity to introduce evidence with respect to it.
Second, there is nothing in the record to support petitioners’
position on brief that the fair market value of the leased
automobile is $12,000. Third, on the record before us, we find
that it is the cost to the Company of purchasing the leased
automobile which is the benefit that Mr. D’Amico received under
the settlement agreement and which we hold below is to be
included in petitioners’ taxable income for 1994.
                             - 14 -


The regulations under section 104(a)(2) restate the statutory

language of that section and further provide:

     The term “damages received (whether by suit or agree-
     ment)” means an amount received (other than workmen’s
     compensation) 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. [Sec. 1.104-1(c), Income Tax Regs.]

     Where damages are received pursuant to a settlement agree-

ment, such as is the case here, the nature of the claim that was

the actual basis for settlement controls whether such damages are

to be excluded from income under section 104(a)(2).   See United

States v. Burke, supra at 237.   The crucial question is “in lieu

of what was the settlement amount paid?”   Bagley v. Commissioner,

105 T.C. 396, 406 (1995), affd. 121 F.3d 393 (8th Cir. 1997).

The determination of the nature of the claim is factual.   See

Robinson v. Commissioner, 102 T.C. 116, 127 (1994), affd. in

part, revd. in part, and remanded on another issue 70 F.3d 34

(5th Cir. 1995); Seay v. Commissioner, 58 T.C. 32, 37 (1972).

Where there is a settlement agreement that is entered into in an

adversarial context, at arm’s length, and in good faith, that

determination is usually made by reference to such agreement.

See Knuckles v. Commissioner, 349 F.2d 610, 613 (10th Cir. 1965),

affg. T.C. Memo. 1964-33; Robinson v. Commissioner, supra.     If

the settlement agreement lacks express language stating what the

settlement amount was paid to settle, the intent of the payor is
                                - 15 -


critical to that determination.    See Knuckles v. Commissioner,

supra; Agar v. Commissioner, 290 F.2d 283, 284 (2d Cir. 1961),

affg. per curiam T.C. Memo. 1960-21.     Although the belief of the

payee is relevant to that inquiry, the character of the settle-

ment payment hinges ultimately on the dominant reason of the

payor in making that payment.    See Agar v. Commissioner, supra at

284; Fono v. Commissioner, 79 T.C. 680, 694 (1982), affd. without

published opinion 749 F.2d 37 (9th Cir. 1984).

     The Supreme Court recently summarized the requirements of

section 104(a)(2) as follows:

           In sum, the plain language of § 104(a)(2), the
     text of the applicable regulation, and our decision in
     Burke establish two independent requirements that a
     taxpayer must meet before a recovery may be excluded
     under § 104(a)(2). First, the taxpayer must demon-
     strate that the underlying cause of action giving rise
     to the recovery is “based upon tort or tort type
     rights”; and second, the taxpayer must show that the
     damages were received “on account of personal injuries
     or sickness.” [Commissioner v. Schleier, supra at 336-
     337.]

     Each of the requirements that must be satisfied in order to

qualify the settlement amounts in dispute for exclusion from

income under section 104(a)(2) involves two inquiries that are

similar.   The dual inquiries under the first requirement are

whether Mr. D’Amico’s underlying claim was based on tort or tort

type rights and, if it was, whether the underlying claim gave

rise to the payment by the Company of the settlement amounts in

dispute.   The dual inquiries under the second requirement are
                               - 16 -


whether Mr. D’Amico’s alleged injuries were personal in nature

and, if so, whether the settlement amounts in dispute were

received on account of those injuries.

     We turn first to the $10,000 payment which the Company made

to Mr. D’Amico under the settlement agreement for the covenants

of secrecy, the release, and the other covenants and obligations

to which Mr. D’Amico agreed.   On the present record, we find that

petitioners have failed to show what portion of the $10,000

payment was made for the covenants of secrecy, what portion was

paid for the release, and what portion was paid for the other

covenants and obligations.5

     Assuming arguendo that petitioners had established what

portion of the $10,000 payment was attributable to the covenants

of secrecy, any such portion was paid by the Company to Mr.

D’Amico for his covenant, as set forth in section 5 of the

settlement agreement, not to divulge any trade secrets and

similar confidential matters that he learned as an employee of

the Company.   On the record before us, we find that petitioners

have failed to establish that any such portion was paid on




     5
      According to petitioners’ 1994 return, the Company
reflected the $10,000 payment, as well as certain other payments
totaling $73,518, that the Company made to and on behalf of Mr.
D’Amico pursuant to the settlement agreement in one or more Forms
1099 relating to the settlement agreement that it issued to him.
                             - 17 -


account of a tort or tort type claim by Mr. D’Amico alleging

personal injuries or sickness.

     Moreover, assuming arguendo that petitioners had established

what portion of the $10,000 payment was attributable to the

release, on the instant record, we find that they have failed to

show that any such portion was paid on account of a tort or tort

type claim by Mr. D’Amico alleging personal injuries or sickness.

In this regard, we do not attribute any particular weight to the

general language in section 8 of the settlement agreement, which

appears to be boilerplate, releasing the Company from any and all

claims including, but not limited to, tort claims.6

     Finally, assuming arguendo that petitioners had shown what

portion of the $10,000 payment was attributable to the other



     6
      Sec. 8 of the settlement agreement provides that the
release extends

     to all rights and claims of every nature and kind
     whatsoever, known or unknown, suspected or unsuspected,
     past or present, that existed before the execution of
     this Agreement, including, but not limited to, all
     rights and claims involving race discrimination, sex
     discrimination, age discrimination, or discrimination
     against persons with disabilities based upon Title VII
     of the federal Civil Rights Act of 1964, as amended,
     (42 U.S.C. §2000e et seq.), the federal Age
     Discrimination in Employment Act, as amended, (29
     U.S.C. §621 et seq.) or the federal Americans with
     Disabilities Act (42 U.S.C. §12101 et seq.) or similar
     state or local statutes, or otherwise and all claims in
     tort or contract related to Employee’s employment or to
     any acts or omissions of the Company involving
     Employee.
                             - 18 -


covenants and obligations to which Mr. D’Amico agreed,7 on the

record before us, we find that petitioners have failed to estab-

lish that any such portion was paid by the Company on account of

a tort or tort type claim by Mr. D’Amico alleging personal

injuries or sickness.

     We turn now to the $23,255 payment that, pursuant to the

settlement agreement, the Company made to purchase the leased

automobile, the ownership of which it transferred to Mr. D’Amico.

On the instant record, we find that petitioners have failed to

establish that the $23,255 payment was made by the Company on

account of a tort or tort type claim by Mr. D’Amico alleging

personal injuries or sickness.   In fact, the record shows that

the Company considered the $23,255 payment to be wage type

compensation to Mr. D’Amico, which it reflected in the Form W-2


     7
      Under sec. 9 of the settlement agreement, Mr. D’Amico
agreed to keep strictly confidential and not to disclose any
information concerning the settlement or the facts and
circumstances that led to his termination of employment by the
Company and the settlement agreement, except for disclosure of
the settlement agreement to the Internal Revenue Service or any
state taxing agency for the purpose of supporting and defending
Mr. D’Amico’s tax position and/or in any administrative or
judicial proceeding where it became relevant.

     Under sec. 17 of the settlement agreement, Mr. D’Amico
agreed, as a further material inducement to the Company to enter
into the settlement agreement, to indemnify and hold the Company
and its affiliates harmless from and against any and all loss,
cost, damages, or expenses that they incurred arising out of a
breach of the settlement agreement or the fact that any
representation made by Mr. D’Amico in the settlement agreement
was false when made.
                             - 19 -


relating to the leased automobile that it issued to him.

     Based upon our examination of the entire record before us,

we find that petitioners have failed to satisfy the requirements

necessary under section 104(a)(2) for exclusion of the settlement

amounts in dispute from their gross income.8   We further find on

that record that petitioners have failed to carry their burden of

showing error in respondent’s determination, as modified on brief

in petitioners’ favor, that they must include the settlement

amounts in dispute (i.e., $33,255) in their taxable income for

1994.

     To reflect the foregoing and the concession of respondent on

brief,

                                               Decision will be

                                        entered under Rule 155.




     8
      We have considered all of the specific contentions and
arguments of petitioners relating to the settlement amounts in
dispute that are not discussed herein, and we find them to be
without merit and/or irrelevant.
