                          T.C. Memo. 1996-50



                       UNITED STATES TAX COURT



                  JESSE F. WEBB, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 10322-94.               Filed February 13, 1996.



Jesse F. Webb, pro se.

Joni D. Larson, for respondent.



                          MEMORANDUM OPINION

   PARKER, Judge: Respondent determined a deficiency in

petitioner's Federal income tax in the amount of $13,726 for the

taxable year 1992.

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the taxable year before

the Court, and all Rule references are to the Tax Court Rules of

Practice and Procedure.

      This case is before us on the parties' cross-motions for
                              - 2 -

summary judgment under Rule 121. Respondent filed her motion for

summary judgment on November 17, 1995. By order of this Court,

dated November 20, 1995, petitioner was allowed to and including

January 4, 1996, within which to file any response to

respondent's motion. On January 3, 1996, petitioner filed his

cross-motion for summary judgment.

     The issue presented for summary judgment by both parties is

whether petitioner may exclude from income, under section

104(a)(2), amounts petitioner received from his previous employer

under the employer's Individual Transition Option Program in

exchange for signing a General Release and Covenant Not To Sue.

A motion for summary judgment is appropriate "if the pleadings,

answers to interrogatories, depositions, admissions, and any

other acceptable materials, together with the affidavits, if any,

show that there is no genuine issue as to any material fact and

that a decision may be rendered as a matter of law." Rule 121(b);

O'Neal v. Commissioner, 102 T.C. 666, 674 (1994) (quoting Kroh v.

Commissioner, 98 T.C. 383, 389 (1992)). The moving party bears

the burden of establishing that this requirement is met, and 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. O'Neal v. Commissioner, supra. The opposing party cannot

rest upon mere allegations or denials, but must set forth

specific facts showing there is a genuine issue for trial. Id.

     In petitioner's cross-motion for summary judgment, he does

not dispute any of respondent's factual allegations; instead he
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argues that "there is a genuine issue to what I.R.C. §104(a)(2)

states" and prays for summary judgment in his favor. There being

no dispute as to any material fact, but only as to the law and

its application here, the issue is ripe for summary judgment.

    The facts presented below are based on the pleadings, facts

stipulated by the parties, and other pertinent materials in the

record. These facts are stated solely for purposes of deciding

the cross-motions. The stipulation of facts and the exhibits

attached thereto are incorporated herein by this reference.

Background

     Petitioner resided in Dallas, Texas, at the time he filed

his petition in this case. From March 11, 1968, until July 31,

1992, petitioner was employed by International Business Machines

Corporation (IBM). At some point prior to July 30, 1992;

petitioner became eligible to participate in the IBM Modified and

Extended Individual Transition Option Program (ITO II Program).

       In order to participate in the ITO II Program, petitioner

was required to sign the General Release and Covenant Not to Sue

(Release). Pertinent sections of the Release read as follows:

             GENERAL RELEASE AND COVENANT NOT TO SUE



             IBM ADVISES YOU TO CONSULT AN ATTORNEY
                  BEFORE YOU SIGN THIS RELEASE



If you feel that you are being coerced to sign this release or
that your signing would for any reason not be voluntary, or you
believe the process by which you have been offered this release
or the payment in exchange for this release is discriminatory,
[footnote discussing various types of unlawful discrimination
omitted] you are encouraged to discuss this with your management
or Personnel before signing this release. After reviewing the
release with your attorney, you can discuss concerns you have
with your manager or your attorney can contact legal counsel at
your location. You should thoroughly review and understand the
effects of the release before signing it.

In exchange for the sums and benefits which you will receive
pursuant to the terms of the [ITO II Program], Jesse Webb[']
(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 agree that this also releases from liability
IBM's agents, directors, officers, employees, representatives,
successors and assigns (hereinafter "those associated with IBM").
* * * 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.



                               - 4 -

                          * * * * * * *
          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
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     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.
     1
       The name Jesse Webb was handwritten into a space
     provided in the typewritten Release.


     On July 30, 1992, petitioner signed the Release.

Petitionerdid not have any claim of age discrimination, or other

unlawfuldiscrimination, against IBM pending at the time he signed

the Release. On that date, petitioner was 46 years old. The

payment petitioner received for signing the Release was not made

pursuant to the Age Discrimination in Employment Act.

     In exchange for participating in the ITO II Program,

petitioner received a payment of $53,427.52 (ITO payment)

calculated on the basis of 49 weeks' pay. The form on which

petitioner's final check was calculated was entitled "Analysis of

Final Check for Termination/Leave of Absence". The form provides

for various categories of payments: Salary, Vacation, Notice Pay,

Overtime, Separation Allowance, and Other. One line on theform

reads "NUMBER OF WKS.    SEPARATION ALLOWANCE"; the number 49 was

inserted in the blank, and at the end of that typewritten text

was written "(ITO ALLOWANCE)". The amount $53,427.52 appears on

this line. Petitioner also received $7,523.47 for 34.5 days of

vacation pay. No amounts were designated for any ofthe remaining

categories. Federal income and FICA takes were deducted from

these amounts. Directly above petitioner's signature on this form

is the statement "I clearly understand this is a pre-retirement
                              - 6 -

leave of absence under I.T.O. II".

     For the year 1992 petitioner received a Form W-2 from IBM

showing wages of $93,509.68 and Federal income tax withheld of

$17,059.64. Petitioner also received a Form W-2 from Nova

University showing wages of $1,920 and Federal income tax

withheld of $133.02 for that year.

     On his Form 1040, petitioner reported wages of $42,002.16

($40,082.16 from IBM and $1,920 from Nova). He did not report the

ITO payment of $53,427.52. He attached a Form 8275 Disclosure

Statement to his 1992 return, asserting that the ITO payment was

excludable under section 104(a)(2) as a payment received in

exchange for the release and settlement of tort-type rights.

Petitioner reported Schedule C net business income of $2,339.67.

He completed Schedule A--Itemized Deductions, incorrectly stating

the total of $983.84, $6,044.99, and $1,027.31 as $8,219.96,

instead of $8,056.14. Petitioner calculated a self-employment tax

of $330.58 and a self-employment tax deduction of $165.29.

      Respondent determined that the ITO payment was fully

taxable severance pay. Respondent increased petitioner's income

as follows:



                     Item                   Amount
                                           1
          Wages-IBM/Nova                    $53,428
          Self-Employment Tax Deduction      165
          Itemized Deductions                164
         1
          This figure pertains only to the IBM ITO
          payment; the income from Nova was included in
                                - 7 -

             the wages reported on petitioner's Form 1040.


     Respondent reduced petitioner's self-employment tax to

zero, and thus eliminated the self-employment tax deduction. The

adjustment for itemized deductions was a correction of

petitioner's addition error.

     Discussion

     Gross income includes all income from whatever

sourcederived, unless specifically exempted. Sec. 61(a);

Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955).

Exclusions from income must be narrowly construed. Commissioner

v. Schleier, 515 U.S.     ,    ,115 S. Ct. 2159, 2163 (June 14,

1995).

         Section 104(a)(2) provides an exclusion from gross

incomefor "the amount of any damages received (whether by suit or

agreement and whether as lump sums or as periodic payments)

onaccount of personal injuries or sickness". The term "damages

received (whether by suit or agreement)" 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. Whether a

settlement payment or recovery may be excluded under section

104(a)(2) depends, on the nature of the claim settled or

litigated. Glynn v. Commissioner, 76 T.C. 116, 119 (1981), affd.
                               - 8 -

without published opinion 676 F.2d 682 (1st Cir. 1982). In order

to exclude a settlement or a recovery, a taxpayer mustdemonstrate

(1) that the underlying cause of action giving rise to the

settlement or recovery is based upon tort or tort-type rights and

(2) that the damages were received on account ofpersonal injuries

or sickness. Commissioner v. Schleier, 515 U.S. at     ,115 S. Ct.

at 2167.

     Respondent argues that (1) there is no underlying cause of

action giving rise to a settlement or recovery; i.e., the

ITOpayment or allowance does not constitute "damages", and (2)

IBMdid not pay petitioner the ITO allowance on account of

personal injury. Petitioner contends that because the ITO payment

was in exchange for the Release which included tort claims and

was intended to avoid litigation, it was a tort

settlement.Petitioner also contends that the ITO allowance was

paid on account of personal injury, since the loss of a job gives

rise tostress-related medical expenses, lost wages, and pain and

suffering, just as the typical personal injury described in

Commissioner v. Schleier, 515 U.S. at , 115 S. Ct. at 2163-2164,

does. Petitioner states that it took him 1-1/2 years tosecure

full-time employment.   At the time petitioner signed the Release,

he had made noclaims against IBM. The Release was not the result

of settlement negotiations between petitioner and IBM. Indeed,
                                - 9 -

petitioner alleges that he signed the Release under protest,1 and

arguesthat the Release itself was the cause of the injury.

     The Release form appears to be a standard document used by

IBM for all those participating in the ITO II Program. The

worksheet calculating petitioner's final paycheck shows the ITO

allowance of 49 weeks’ pay and petitioner's tenure with IBM as

just under 24-1/2 years. A terminated employee returning to work

at IBM could be required to repay a portion of the ITO allowance

based on the number of weeks paid as compared to the number of

weeks off the IBM payroll. We agree with respondent that the ITO

payment or allowance that petitioner received was not damages but

severance pay.2 See Taggi v. United States, 35 F.3d 93 (2d

Cir.1994); Glynn v. Commissioner, supra.

   The Release covered contract claims as well as tort claims,and

it included only those claims arising up through the date of

signing. We acknowledge that petitioner undoubtedly suffered from

the stress of losing his job after more than 24 years with the


     1
        There is no indication in the record that petitioner ever
protested to IBM.
      2
        "Severance pay" is defined as an allowance usually based
on length of service that is payable to an employee on
termination of employment. Webster's Ninth Collegiate Dictionary
(1985).         .
                              - 10 -

same employer and from the ensuing period of underemployment.

     Yet, most of this suffering occurred after

petitioner'stermination.   Petitioner had made no claims based on

personal injury prior to his signing the Release. The ITO

allowance was not paid on account of any tort-type personal

injuries.

     In conclusion, we hold that petitioner's ITO payment is not

excludable from gross income under section 104(a)(2). In keeping

with this holding.

                                               An appropriate

                                    order and decision will be

                                    entered.
