                        T.C. Memo. 2000-103



                     UNITED STATES TAX COURT



               FRANCIS G. LAGUAITE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 23516-97.                     Filed March 27, 2000.



     Francis G. Laguaite, pro se.

     Gwendolyn C. Walker, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     THORNTON, Judge:   Respondent determined a deficiency of

$22,906 in petitioner’s 1995 Federal income tax.   After

concessions1, the sole issue for our consideration is whether


     1
       Respondent concedes that petitioner properly included
$22,056 in pension income in his taxable year 1995 Federal income
tax return. In addition, respondent determined that petitioner’s
                                                   (continued...)
                               - 2 -


$76,740 that petitioner received upon termination from his former

employer is excludable from petitioner’s 1995 gross income

pursuant to section 104(a)(2).2   We hold that it is not.



                         FINDINGS OF FACT

     The parties have stipulated some of the facts, which are

incorporated in our findings by this reference.   Petitioner

resided in Stone Mountain, Georgia, when he filed his petition.

     On September 20, 1994, petitioner received a phone call from

his employer of 29 years, Air Products and Chemicals, Inc. (APC),

informing him that he was to be terminated.   Petitioner was 55

years old at the time.

     On or about October 3, 1994, APC sent petitioner an

unexecuted Agreement and General Release form (the release).

The release stated that petitioner would receive a “cash

termination payment equivalent to two weeks’ base pay for each

year and partial year of completed continuous service with the

Company, in consideration of * * * [petitioner’s] execution” of

the release.   The release stated that petitioner agrees to


     1
      (...continued)
dividend income should be increased by $21. Petitioner has not
addressed this issue, and we deem him to have conceded it.
     2
       Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year at issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
                               - 3 -


release and settle “any and all manner of suits, actions, causes

of action, damages and claims, known and unknown” that he has or

may have against APC.   The release stated that it

     includes, but is not limited to, claims arising under
     federal, state and local laws, including those prohibiting
     employment discrimination or claims growing out of any legal
     restrictions on the Company’s rights to terminate its
     employees, including but not limited to the Rehabilitation
     Act of 1973 * * *, the Age Discrimination in Employment Act
     of 1967, * * * Title VII of the Civil Rights Act of 1964,
     * * * the Civil Rights Act of 1991, * * * the Americans with
     Disabilities Act, * * * and the Employee Retirement Income
     Security Act * * *.

     On October 19, 1994, petitioner sent APC a letter demanding

severance pay and asserting that his right thereto was not

conditional on the execution of any release.   On October 24,

1994, APC responded by letter stating, “One of the eligibility

criteria for severance pay is the execution of a Release

generally in the form presented to you.”   The letter requested

that petitioner notify APC if he wished to suggest modifications

to the release.

     By letter dated November 15, 1994, petitioner asserted that

APC’s failure to pay him severance pay would constitute “Common

Law Fraud”.   By letter dated December 1, 1994, petitioner

asserted to APC that he was the victim of age discrimination.

APC did not respond to these letters.

     After consulting a number of attorneys, on January 6, 1995,

petitioner signed the release and received from APC severance pay
                               - 4 -


of $76,739 based on years of service and salary.    APC reported

the payment as taxable income to petitioner and withheld Federal

income taxes.

     On his 1995 Federal income tax return, petitioner excluded

the severance pay from his taxable income, but disclosed his

position that the payment was not taxable because he believed it

was based upon tort or tort type rights.

                              OPINION

     Except as otherwise provided, gross income includes income

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

Commissioner, 348 U.S. 426 (1955).     Section 104(a)(2) excludes

from gross income “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”.     Under

the applicable regulations, “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.”   Sec. 1.104-1(c), Income Tax Regs.

For damages to be excludable under section 104(a)(2), a taxpayer

must show:   (1) The underlying cause of action giving rise to the

recovery is based upon tort or tort type rights; and (2) the

damages were received on account of personal injuries or
                                - 5 -


sickness.    See Commissioner v. Schleier, 515 U.S. 323, 336-337

(1995).

     Where damages are received pursuant to a settlement

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

settlement governs the excludability of the damages under section

104(a)(2).   See United States v. Burke, 504 U.S. 229, 237 (1992).

“The critical 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).

     Assuming that petitioner may have had a potential tort type

claim for emotional distress or other injuries resulting from his

involuntary termination of employment, the crucial question is

whether he received the $76,740 payment on account of personal

injuries or sickness.

     Where, as here, the settlement agreement does not expressly

state the purpose for which payment was made, the most important

factor is the payor’s intent.   See Knuckles v. Commissioner, 349

F.2d 610, 613 (10th Cir. 1965), affg. T.C. Memo. 1964-33.

     The evidence does not indicate that APC intended to

compensate petitioner for personal injuries.   To the contrary,

the release, as well as correspondence between APC and

petitioner, indicates that both APC and petitioner regarded the

payment in question as severance pay.   Neither the mode of

calculating the payment, based on petitioner’s years of service
                               - 6 -


and salary, nor the circumstances under which it was offered to

petitioner, before he had made known to APC any claim of personal

injury, suggest that APC intended to make the payment on account

of any personal injury to petitioner.    See Phillips v.

Commissioner, T.C. Memo. 1997-336.     The release form appears to

be a standardized document, which is in itself indicative that

the payment was not on account of personal injuries.    See Gajda

v. Commissioner, T.C. Memo. 1997-345, affd. 158 F.3d 802 (5th

Cir. 1998).   Although petitioner was offered the opportunity to

suggest modifications to the release form, he did not do so.

Consequently, we discern no alteration in APC’s intent in making

the payment from the time it set out the payment criteria in the

release form until it made payment to petitioner according to

those criteria.

     The release contains no mention of any particular claims by

petitioner against APC, but rather refers comprehensively to

petitioner’s release of “any and all * * * claims, known and

unknown,” including claims “arising under federal, state and

local laws,” specifying by way of example, inter alia, claims

under the Age Discrimination in Employment Act, for which damages

received are not excludable under section 104(a)(2).    See

Commissioner v. Schleier, supra.

     Because the release allocates no part of the payment to

claims of tort or tort type damages, and in the absence of facts
                               - 7 -


upon which petitioner could rely to prove such an allocation, the

entire payment is presumptively includable in gross income.    See

Taggi v. United States, 35 F.3d 93, 96 (2d Cir. 1994); Sherman v.

Commissioner, T.C. Memo. 1999-202; Gajda v. Commissioner, supra.

     In sum, while we do not question that petitioner’s

involuntary termination of employment may have caused him

anguish, the evidence does not indicate that APC made the payment

in question to compensate him for personal injury.   Rather, we

conclude that the payment represented severance pay, which is not

excludable from income.   See Phillips v. Commissioner, supra.

     To reflect the foregoing and the parties’ concessions,



                                    Decision will be entered

                               under Rule 155.
