                       T.C. Memo. 2000-95



                     UNITED STATES TAX COURT



              JOSEPH HENRY METELSKI, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 12307-98.                    Filed March 21, 2000.



     Joseph Henry Metelski, pro se.

     Robert T. Bennett, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     CARLUZZO, Special Trial Judge:    Respondent determined a

deficiency of $3,764 in petitioner's 1995 Federal income tax.

The issue for decision is whether a lump-sum payment received by

petitioner from his former employer is excludable from income

under section 104(a)(2).    Section references are to the Internal

Revenue Code in effect for the year 1995.
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                        FINDINGS OF FACT

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

Petitioner filed a timely 1995 Federal income tax return.    At the

time the petition was filed, he resided in Bedminster, New

Jersey.

     Petitioner began employment with AT&T Communications, Inc.

(AT&T) in December 1963 and remained so employed until his

employment was terminated, as discussed below, on May 18, 1995.

As of that date, and during all other times relevant here, he was

a manager in AT&T’s international operations division.   As a

manager, petitioner’s employment relationship with AT&T was

described as “at-will”, which, according to an AT&T publication,

meant that petitioner had “the right to terminate * * * [his]

employment at any time for any reason, and * * * [AT&T reserved]

the right to terminate * * * [petitioner] on the same basis,

regardless of any statements, written or oral, by * * * [AT&T],

or any of its employees or representatives, which may seem to be

the contrary.”

     In early 1994, petitioner received formal notification that

senior managers within his division had elected to implement

AT&T’s Force Management Program (the retirement program).    He was

57 years old at the time.   As described in literature provided to

petitioner by AT&T, the retirement program was designed “to give
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* * * [AT&T’s] managers the flexibility they need to reduce the

number of management employees when necessary” because of “force

or skills imbalances resulting from conditions such as changes in

business strategy, technological changes, unfavorable economic

circumstances, decisions to exit a particular market or business,

and facility/office closings or consolidations, position

eliminations, business process reengineering and skills

mismatch.”   Later that year petitioner was advised that he was

within a category of manager/employees eligible to “voluntarily”

terminate employment with AT&T in return for specified payments.

In general, the payments were determined by a formula that took

into account the number of years that the employee was employed

by AT&T and the employee’s age.

     On August 31, 1994, petitioner signed the first of a series

of documents that terminated his employment with AT&T pursuant to

the retirement program.   Under the options selected by

petitioner, he was entitled to remain as an active AT&T employee

for 35 weeks following the date of the above agreement.    During

this time, although not required to report to work, petitioner

was compensated by periodic payments at his then salary (the

periodic payments) and eligible for other employee benefits.   At

the conclusion of the 35 weeks, after signing several other

program documents, releases, and waivers, petitioner became

entitled to, and received, a lump-sum payment of $12,417.62 (the
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lump-sum payment).   The amount of the lump-sum payment was

specified under the terms of the retirement program to be 20

percent of the periodic payments.

     The release/waiver that petitioner signed in connection with

the lump-sum payment contained the following paragraphs:

  4. I realize that there are various state and federal laws
     that govern my employment relationship with * * *
     [AT&T] and/or prohibit employment discrimination on the
     basis of age, color, race, gender, sexual
     preference/orientation, marital status, national
     origin, mental or physical disability, religious
     affiliation or veteran status and that these laws are
     enforced through the courts and agencies such as the
     Equal Employment Opportunity Commission, Department of
     Labor and State Human Rights Agencies. Such laws
     include, but are not limited to, Title VII of the Civil
     Rights Act of 1964, the Age Discrimination in
     Employment Act, as amended, 42 U.S.C. Section 1981,
     etc. In consideration of * * * [the lump-sum payment],
     I intend to give up any rights I may have under these
     or any other laws with respect to my employment and
     termination of employment at * * * [AT&T] and
     acknowledge that * * * [AT&T] * * * [has] not (a)
     discriminated against me, (b) breached any express or
     implied contract with me, or (c) otherwise acted
     unlawfully toward me.

  5. Subject to paragraph 6 herein, on behalf of myself, my
     heirs, executors, administrators, successors and
     assigns, I release and discharge * * * [AT&T], and * *
     * [its] successors, assigns, subsidiaries, affiliates,
     shareholders, directors, officers, representatives,
     agents and employees ("Releases") from any and all
     claims, including claims for attorney's fees and costs,
     charges, actions and causes of action with respect to,
     or arising out of my employment or termination of
     employment with * * * [AT&T]. This includes, but is
     not limited to, claims arising under federal, state, or
     local laws prohibiting age, color, race, gender, sexual
     preference/orientation, marital status, national
     origin, mental or physical disability, religious
                               - 5 -

     affiliation or veteran status or any other forms of
     discrimination or claims growing out of * * * [AT&T’s]
     termination of its employees. With respect to any
     charges that have been or may be filed concerning
     events or actions relating to my employment or the
     termination of my employment and which occurred on or
     before the date of this * * * [release/waiver], I
     additionally waive and release any right I may have to
     recover in any lawsuit or proceeding brought by me, an
     administrative agency, or any other person on my behalf
     or which includes me in any class.

     As the parties have stipulated, before the relevant

documents/releases/waivers were signed by him, petitioner “had

not made any claim against AT&T arising out of his employment”,

he “had not threatened, nor brought to the attention of AT&T, the

possibility of a claim against AT&T arising out of his

employment”, and he “was not aware of any emotional or physical

harms that he * * * [might] have suffered that were directly or

indirectly caused by his employment with AT&T”.

     The lump-sum payment and the periodic payments that

petitioner received in 1995 were included in the wages reported

on a Form W-2 issued to petitioner by AT&T for that year.

     On his 1995 Federal income tax return, petitioner reported

the periodic payments received in 1995, but did not report the

lump-sum payment.   In the notice of deficiency, respondent

determined that the lump-sum payment must be included in

petitioner’s 1995 income.
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                                OPINION

     Except as otherwise provided, gross income includes income

from whatever source derived.    See sec. 61(a); Commissioner v.

Glenshaw Glass Co., 348 U.S. 426 (1955).    The term “gross income”

is broadly construed.    Commissioner v. Schleier, 515 U.S. 323,

327-328 (1995).   Generally, severance pay fits within the

definition of gross income.    See, e.g., Taggi v. United States,

35 F.3d 93 (2d Cir. 1994); Glynn v. Commissioner, 76 T.C. 116

(1981) affd. without published opinion 676 F.2d 682 (1st Cir.

1982).

     On the other hand, 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”.   Sec. 104(a)(2).   To qualify for exclusion

under that section, “damages” must be "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.

Under section 104(a)(2), a taxpayer may exclude damages from

income only if:   (1) The underlying claim that gave rise to the

damages was based upon tort or tort type rights; and (2) the

damages were received on account of personal injuries or

sickness.   See Commissioner v. Schleier, supra at 333-334; Bagley

v. Commissioner, 105 T.C. 396, 416 (1995), affd. 121 F.3d 393
                               - 7 -

(8th Cir. 1997).   Like other exclusion provisions, section

104(a)(2) is narrowly construed.   See Commissioner v. Schleier,

supra.

     According to petitioner, the lump-sum payment fits within

the definition of damages under section 104(a)(2) and is

excludable from his income under that section.    Petitioner

acknowledges that prior to receiving the lump-sum payment:     (1)

He never made any claim against AT&T for damages of any type;

(2) he was unaware of any personal injuries or sickness that AT&T

might have caused; and (3) he was unaware of any tort or tort

type claim for damages that he might have had against AT&T.

Nevertheless, in support of his position, he argues that AT&T

must have considered that he had some claim against the company,

otherwise he would not have been required to sign the

release/waivers in return for the lump-sum payment.

     According to respondent, petitioner has failed to establish

that the lump-sum payment can be excluded from petitioner’s

income under section 104(a)(2).    Furthermore, respondent contends

that the lump-sum is properly characterized as severance pay that

must be included in petitioner’s 1995 income.    We agree with

respondent on both points.

     There is nothing in the record that suggests that petitioner

suffered any personal injury or sickness caused by his employment

with AT&T or the termination of that employment.    Petitioner’s
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testimony on the point and the stipulation of the parties

indicate otherwise.   Furthermore, the only evidence in the record

that remotely suggests that the lump-sum payment was made to

compensate petitioner for personal injuries or sickness is the

language used in the release/waivers that petitioner was required

to sign pursuant to the retirement program.    Contrary to

petitioner’s presumption, however, the requirement that

petitioner waive any such rights against AT&T does not in and of

itself establish the existence of such rights.    Nor does that

requirement establish that the lump-sum payment was made in

settlement of a claim that petitioner might have had against AT&T

for the violation of any such rights.

     We are satisfied that the lump-sum payment does not qualify

for exclusion under section 104(a)(2).    Our conclusion in this

regard is supported on several grounds.    First, from all

indications in the record, the release/waivers that petitioner

was required to sign were used by AT&T in the case of any

manager/employee who was eligible and elected to terminate

employment under the retirement program.    Secondly, the amount of

the lump-sum payment was not determined with respect to any

tortious conduct on AT&T’s part; instead the lump-sum payment was

determined with reference to petitioner’s years of employment

with AT&T and his age.   Lastly, considering that the lump-sum

payment was made as part of the retirement program, it is more in
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the nature of severance pay, as respondent contends.     See Sodoma

v. Commissioner, T.C. Memo. 1996-275, affd. 139 F.3d 899 (5th

Cir. 1998).

     It follows that petitioner must include the lump-sum payment

in his 1995 income and respondent’s determination in this regard

is sustained.

     Based on the foregoing,

                                            Decision will be

                                       entered for respondent.
