                  T.C. Summary Opinion 2001-76



                     UNITED STATES TAX COURT



     RICHARD J. TRITZ AND MARY JO NIETUPSKI, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 18712-99S.                     Filed June 4, 2001.



     Richard J. Tritz and Mary Jo Nietupski, pro sese.

     James M. Klein and Mark J. Miller, for respondent.



     DINAN, Special Trial Judge:    This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.   The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.   Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

effect for the year in issue.
                                - 2 -

     Respondent determined a deficiency in petitioners’ Federal

income tax of $2,184 for the taxable year 1997.

     The issue for decision is whether petitioners are entitled

under section 104(a) to exclude from income an amount received

pursuant to a severance package.

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

The stipulations of fact and the attached exhibits are

incorporated herein by this reference.    Petitioners resided in

Muskego, Wisconsin, on the date the petition was filed in this

case.

     Petitioner husband (petitioner) was employed as an

application systems engineer with Amdahl Corporation from 1994 to

1997.   Petitioner was treated in 1994 through 1996 for carpal

tunnel syndrome (CTS), the symptoms of which had begun prior to

his employment at Amdahl.    Petitioner’s treatment included

surgery which caused him to miss work for 1 week and 5 days in

1994 and for 3 weeks and 4 days in 1995.    He received payments

from an insurance company on behalf of Amdahl for the treatment

of CTS and for lost wages.    The insurance company questioned

responsibility for the payment of the expenses due to the fact

that petitioner was injured to some extent prior to his

employment at Amdahl.   As of July 17, 1995, petitioner’s medical

records indicate that he no longer had symptoms of CTS and that

there was no permanent disability relating thereto.    Petitioner
                                 - 3 -

also experienced pain in his shoulder, arm, and elbows while

working at Amdahl.

     At some point in time, Amdahl discontinued sales of a

certain software development package in North America due to

declining sales.   In response, Amdahl implemented a business

reduction plan.    Petitioner’s employment was terminated after he

refused Amdahl’s offer to be transferred to a new position in

Chicago, Illinois (he had been working in the northern suburbs of

Chicago prior to termination).    Pursuant to the business

reduction plan, which affected employees other than petitioner,

Amdahl provided petitioner with a severance package consisting of

2 weeks of regular salary and benefits.      He was also provided

with a one-time payment of $15,588.      In order to receive this

one-time payment, petitioner was required to execute a general

release of claims in favor of Amdahl.      He had no opportunity to

engage in substantive discussions regarding the content of this

release, which provides in relevant part:

          In consideration of the Enhanced Salary
     Continuation Pay and Benefits paid to me by Amdahl
     Corporation in connection with the termination of my
     employment in accordance with the terms of the 1997
     Salary Continuation Pay and Benefit Plan, a copy of
     which has been given to me, I hereby fully and forever
     RELEASE and DISCHARGE Amdahl * * * from all claims and
     causes of action arising out of or relating in any way
     to my employment with Amdahl, including the termination
     of my employment. Should I maintain any action or
     claim against Amdahl for workers’ compensation
     benefits, which action or claim results in an award or
     payment to me, Amdahl will be entitled to a dollar for
                               - 4 -

     dollar offset of any award or payment against the
     amounts paid as part of this separation package.

The release then recites a lengthy noninclusive list of claims

waived by the release--this list includes claims of personal

injury.   A document provided with the release titled “1997

Reduction In Force Questions and Answers” states two purposes for

the reduction in force:   (1) “Give our separated employees a

generous salary continuation package,” and (2) “Fix the costs

associated with the Reduction in Force.”   The explanation further

states:

     Experience in the industry and in the area shows that
     separated employees are increasingly inclined to
     challenge their terminations. Defending against agency
     charges and individual lawsuits costs money and makes
     the costs associated with the Reduction in Force
     unpredictable. Frankly, we would rather distribute
     that money to our separated employees in the form of a
     better separation package than to pay it to lawyers.

Nothing in this document specifically addresses the aspects of

the general release waiving or releasing Amdahl from claims

arising from personal injuries.

     Petitioner signed the release on March 14, 1997.

Petitioner’s employment with Amdahl was terminated on March 28,

1997, and petitioner was paid the amounts under the plan.     When

petitioner’s employment was terminated, neither he nor an agent

on his behalf had informed Amdahl that he intended to sue them

for personal injury suffered as a result of his employment.
                               - 5 -

     Amdahl treated the entire amount paid to petitioner as

compensation and issued him a Form W-2, Wage and Tax Statement.

With their 1997 joint Federal income tax return, petitioners

filed a statement explaining their position concerning the

taxability of the amount reported on the Form W-2.   Petitioners

argued that the one-time payment was received in exchange for the

release of a variety of different types of claims, including

claims for personal injury, emotional distress, workers’

compensation, ERISA violations, discrimination violations, and

civil rights violations.   Petitioners estimated that one-half of

the one-time payment was nontaxable and accordingly did not

include $7,794 of this amount in income.   Petitioners did include

in income $35,679 of the severance package, representing the

remainder of the one-time payment and the portion representing

two weeks of compensation.

     In the statutory notice of deficiency, respondent determined

that the amount excluded by petitioners as nontaxable, $7,794,

was severance or termination pay and entirely taxable.

Petitioners now argue that the entire amount of the one-time

payment, not merely one-half, should be excluded from income.

     Separation or severance pay, like other forms of

compensation for services, is generally includable in the income

of the recipient.   See sec. 61(a)(1); sec. 1.61-2(a)(1), Income

Tax Regs.; Brennan v. Commissioner, T.C. Memo. 1997-317.
                                - 6 -

However, section 104(a)(2) excludes from gross income certain

amounts received on account of personal physical injury or

sickness.   The provision reads in pertinent part:

          SEC. 104(a). In General.--Except in the case of
     amounts attributable to (and not in excess of) deductions
     allowed under section 213 (relating to medical, etc.,
     expenses) for any prior taxable year, gross income does not
     include--

                      *    *    *       *   *   *    *

                 (2) the amount of any damages (other than punitive
            damages) received (whether by suit or agreement and
            whether as lump sums or as periodic payments) on
            account of personal physical injuries or physical
            sickness;

                      *    *    *       *   *   *    *

     * * * For purposes of paragraph (2), emotional distress
     shall not be treated as a physical injury or physical
     sickness. The preceding sentence shall not apply to an
     amount of damages not in excess of the amount paid for
     medical care (described in subparagraph (A) or (B) of
     section 213(d)(1)) attributable to emotional distress.1


     1
      Section 104(a) was amended by the Small Business Job
Protection Act of 1996, Pub. L. 104-188, sec. 1605(a), 110 Stat.
1755, 1838. Prior to amendment, it read in pertinent part:

          SEC. 104(a). In General.--Except in the case of
     amounts attributable to (and not in excess of) deductions
     allowed under section 213 (relating to medical, etc.,
     expenses) for any prior taxable year, gross income does not
     include--

                      *    *    *       *   *   *    *

                 (2) 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;

                                                      (continued...)
                                 - 7 -

     Petitioners argue that the one-time payment was on account

of personal physical injury because the only actual and/or

potential claim petitioner had against Amdahl at the time the

release was signed was for personal physical injury.

     Where damages are received pursuant to a settlement

agreement, the nature of the claim that was the actual basis for

the agreement controls whether such damages are excludable under

section 104(a)(2).     See Brennan v. Commissioner, supra.        Where

the settlement agreement lacks express language stating what the

settlement amount was paid to settle, then the most important

factor in making that determination is the intent of the payor,

rather than whether or not the taxpayer actually suffered an

injury.    See Primozic v. Commissioner, T.C. Memo. 1999-95.        The

absence of any knowledge of a claim on the part of the payor has

a negative impact in determining the requisite intent of the

payment.   See Brennan v. Commissioner, supra.       Claims for



     1
      (...continued)
                       *    *    *       *   *   *      *

     * * * Paragraph (2) shall not apply to any punitive damages
     in connection with a case not involving physical injury or
     physical sickness.

The amendment applies to amounts (1) received after August 20,
1996, in taxable years ending after such date, (2) which were not
received under a written binding agreement, court decree, or
mediation award in effect on (or issued on or before) September
13, 1995. See id. sec. 1605(d), 110 Stat. 1839. Petitioner
signed the release in this case on March 14, 1997, and the
payment therefor was received after that date.
                                 - 8 -

potential future injuries do not qualify for exclusion under

section 104(a).     See id.2

     The release in this case recites a vast number of types of

claims with respect to which petitioner released Amdahl from

liability.   Because the release does not specify what portion of

the payment is allocable to which claim, we look to the payor’s

intent.   See id.    We find that the payment in this case was not

made with the intent to compensate petitioner for personal

physical injury.     First, Amdahl had not been notified of any

claim petitioner had against it concerning such injury.       In

addition, the payment was made to petitioner in connection with

the termination of his employment.       He was one of a group of

employees who had the option of signing an identical release in

order to obtain a superior severance package.       The use of a

standardized release form in connection with the termination of a

number of employees is indicative that the payment was not on

account of personal injuries.     See Laguaite v. Commissioner, T.C.

Memo. 2000-103.     This is especially true in this case, where


     2
      The cases cited here and infra remain instructive even
though they were decided prior to the amendment of sec.
104(a)(2). The section was amended by Congress with respect to
the requirement that the personal injury be physical and the
treatment of punitive damages. See H. Conf. Rept. 104-737
(1996), at 300-302, 1996-3 C.B. 1040-1042; H. Rept. 104-586
(1996), at 142-144, 1996-3 C.B. 480-482; S. Rept. 104-281 (1996),
at 115-116. Neither of these modifications bear on the case at
bar, and nothing in the statute or its legislative history
indicates that we should interpret the unaffected portion of the
statute differently than prior to amendment.
                               - 9 -

petitioner was unable even to discuss the terms of the agreement

with Amdahl.

     Petitioners further argue (1) that the amount paid to

petitioner for treatment of his injury was less than the normal

cost of such treatment, (2) that petitioner’s prior injury may

result in future costs if it is discovered that his injury was

more serious than previously thought, and (3) that petitioner has

not yet received any amounts for pain and suffering with respect

to the injury.   All of these assertions are irrelevant to the

underlying intent in Amdahl’s making the one-time payment as part

of petitioner’s severance package.

     Because petitioner received the one-time payment as part of

a severance package in connection with the termination of his

employment, and not on account of personal physical injury or

sickness, the payment is not excludable from gross income under

section 104(a)(2).

     Petitioners make the alternative argument that the one-time

payment for the release is excludable as a workers’ compensation

payment.   They are presumably arguing that section 104(a)(1) is

applicable in this case.   Section 104(a)(1) generally excludes

from income “amounts received under workmen’s compensation acts

as compensation for personal injuries or sickness.”   It is clear

that petitioner did not receive the one-time payment under a

workmen’s compensation act or “under a statute in the nature of a
                               - 10 -

workmen’s compensation act which provides compensation to

employees for personal injuries or sickness incurred in the

course of employment.”   Sec. 1.104-1(b), Income Tax Regs.

Rather, the payment was made in exchange for the execution of the

release in connection with the termination of petitioner’s

employment, as discussed above.   The payment is therefore not

excludable from gross income under section 104(a)(1).

      Finally, petitioners argue that (1) employment taxes were

erroneously withheld from the one-time payment, and (2) the

interest assessed by respondent is improper.   This is a Court of

limited jurisdiction.    We may only exercise jurisdiction that is

expressly permitted or provided by statute.    See Henry Randolph

Consulting v. Commissioner, 112 T.C. 1, 4 (1999).    No statute in

the Code provides this Court with jurisdiction to review

respondent’s assessment of employment taxes in this case.3    See

id.   Likewise, this Court does not have jurisdiction to

redetermine interest in this case prior to the entry of a

decision redetermining the deficiency.   See sec. 7481(c); Rule

261; Pen Coal Corp. v. Commissioner, 107 T.C. 249, 255 (1996).




      3
      Judicial review of employment taxes may be obtained, after
paying the taxes and requesting a refund from the Secretary, in a
refund suit in Federal District Court or the United States Court
of Federal Claims. See sec. 7422(a); 28 U.S.C. secs. 1346(a)(1)
and 1491(a)(1) (1994).
                            - 11 -

    Reviewed and adopted as the report of the Small Tax Case

Division.

    To reflect the foregoing,

                                     Decision will be entered

                                for respondent.
