                  T.C. Memo. 1997-563



                UNITED STATES TAX COURT



          MICHAEL G. KROPOSKI, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 8056-96.              Filed December 23, 1997.



     Held: P failed to prove that any portion of a
payment he received from his former employer after
being laid off constitutes damages excludable under
sec. 104(a)(2), I.R.C.



Michael G. Kroposki, pro se.

Michael P. Breton, for respondent.
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                        MEMORANDUM OPINION


     HALPERN, Judge:   Respondent determined a deficiency of

$30,993 in petitioner’s 1993 Federal income tax.    The only issue

to be decided is whether petitioner may exclude from gross income

any portion of a payment received pursuant to a settlement

agreement in 1993.

     Unless otherwise noted, all section references are to the

Internal Revenue Code in effect for 1993, and all Rule references

are to the Tax Court Rules of Practice and Procedure.

     Some facts have been stipulated and are so found.    The

stipulation of facts, with accompanying exhibits, is incorporated

herein by this reference.   We need find few facts in addition to

those stipulated and, accordingly, will not separately set forth

those findings.   We will include additional findings of fact in

the discussion that follows.    Petitioner bears the burden of

proof on all questions of facts.    Rule 142(a).

                              Background

     At the time the petition was filed, petitioner resided in

Monroe, New York.

     Petitioner was born in 1946 and reached the age of 47 in

1993.

     Petitioner was employed as an attorney with Boehringer

Ingelheim Pharmaceutical, Inc. (Boehringer), from October 1,

1979, through May 11, 1992.
                               - 3 -


     By letter dated March 9, 1992, from Boehringer (the March 9

letter), petitioner was notified that, effective May 4, 1992, he

would be permanently laid off as part of a restructuring within

the company (the restructuring).   Petitioner was one of a number

of Boehringer employees laid off on account of the restructuring

(the laid off employees).   The laid off employees were offered a

package of benefits.   Among those benefits was a payment entitled

“special severance payment”.   The amount of the special severance

payment offered to a particular laid off employee was determined

pursuant to a generally applicable schedule that took into

account years of service and base salary.    The amount of the

special severance payment offered to petitioner was $112,542.21.

Petitioner was given until April 30, 1992, to accept that special

severance payment by signing an agreement entitled “separation

agreement” (the separation agreement).   Petitioner did not sign

the separation agreement and, as a result, did not receive the

special severance payment offered to him.    Petitioner retained a

lawyer who wrote to Boehringer on April 23, 1992 (the April 23

letter), stating that Boehringer’s termination of petitioner’s

employment violated the “Age Discrimination in Employment Act

(‘ADEA’), 29 U.S.C. § 621 et seq.” (ADEA).    The April 23 letter

invites settlement but threatens litigation “under the ADEA and

any other theories that are meritorious.”    By counsel, Boehringer

responded to the April 23 letter with a letter of its own, dated
                               - 4 -


May 1, 1992, denying any grounds for an ADEA claim but allowing

for further discussion.   Following one or more telephone

conversations between counsel for Boehringer and counsel for

petitioner, Boehringer’s counsel again wrote to petitioner’s

counsel on June 12, 1992 (the June 12 letter).   The June 12

letter recites various separation benefits that petitioner

already had received, offers “to increase the original severance

offer to * * * [petitioner] by $2,500”, offers to make the total

payment in January 1993 as requested by petitioner, and notes

that the following documents accompany the letter:   (1) a draft

letter of recommendation that would be signed by the appropriate

Boehringer official and (2) a “revised Release and Settlement

Agreement”.

     Subsequent to the June 12 letter, petitioner and Boehringer

entered into an agreement entitled “Settlement and General

Release Agreement” (the final agreement).   The final agreement

contains numerous recitals, including the following:   (1) that

petitioner’s employment relationship with Boehringer had been

terminated, (2) that petitioner “has made certain claims for

damages against * * * [Boehringer], including those set forth in

* * * [the April 23 letter]”, (3) that petitioner alleges “that

the termination of the employment relationship was unjust and

discriminatory”, and (4) that Boehringer denies those allegations

and asserts that it was legally entitled to terminate its
                              - 5 -


employment relationship with petitioner.       In consideration of the

terms, covenants, and conditions of the final agreement,

petitioner and Boehringer agree as follows, among other things:

          1. In full settlement of all of Releasor's
     [petitioner's] claims related to the employment
     relationship and the termination of the employment
     relationship, Company [Boehringer] shall pay to
     Releasor no earlier than January 15, 1993 and no later
     than January 30, 1993, the sum of * * * [$115,500.00].
     Company may withhold from said payment Federal
     Insurance Contributions Act tax, federal and state
     taxes.

               *    *    *    *       *    *      *

          2. * * * Releasor has not filed any complaints,
     claims, or actions against Company * * * with any
     state, federal, or local agency or court and * * * will
     not do so * * *

               *    *    *    *       *    *      *

          6. * * * Releasor hereby fully RELEASES,
     DISCHARGES and WAIVES any and all claims, counts,
     causes of action and demands of every kind and nature,
     whether or not now known to Releasor, arising out of
     Releasor and Company's employment relationship or the
     termination of the employment relationship, which
     Releasor has, or under any circumstances could or might
     have, against Company, including its parent
     corporation, subsidiaries * * *

               *    *    *    *       *    *      *

          7. Releasor understands that this Agreement and
     the release of claims contained herein covers all
     claims relating to the employment relationship or the
     termination of the employment relationship resulting
     from any act or omission by or on the part of Company
     committed or omitted prior to the execution of this
     Agreement, including but not limited to, any and all
     claims under Title VII of the Civil Rights Act of 1964,
     42 U.S.C. Section 2000(e) et seq.; any and all claims
     under the Civil Rights Act of 1866, 42 U.S.C.
     Section 1981; any and all claims under the Americans
                              - 6 -


     with Disabilities Act of 1990, 42 U.S.C. Section 12101
     et seq.; any and all rights or claims under the Age
     Discrimination in Employment Act, 29 U.S.C.
     Section 621, et seq.; any and all claims under the
     Employee Retirement Income Security Act, 29 U.S.C.
     Section 1001 et seq.; any and all claims under the
     Connecticut fair employment practices statutes, CGS
     §46a-60 et seq.; any and all contract or tort claims;
     and any and all other claims under any federal, state
     or local statute or ordinance or under any federal,
     state or local common law.

          8. It is acknowledged that Releasor may hereafter
     discover claims or facts in addition to or different
     from those which Releasor now knows or believes to
     exist with respect to the subject matter of this
     Agreement and which, if known or suspected at the time
     of executing this Agreement, may have materially
     affected this settlement. Releasor, nevertheless,
     hereby waives any right, claim or cause of action that
     might arise as a result of such different or additional
     claims or facts. * * *

          9. * * * The purpose of this Agreement is to provide
     for an amicable settlement of any and all claims Releasor
     may have relative to the employment relationship or the
     termination of the employment relationship.

     Numbered paragraphs 6 through 9 of the final agreement are

substantially identical to provisions of the separation

agreement, which petitioner had refused to sign.

     Pursuant to the final agreement, petitioner received

$115,500 from Boehringer in January 1993 (the payment).

Boehringer withheld taxes (including Federal income tax) from the

payment and issued to petitioner a Form W-2, which indicates that

information relating to the payment was being furnished to the

Internal Revenue Service.
                                - 7 -


     Petitioner did not include the payment as an item of gross

income in his 1993 Federal income tax return.    Respondent

determined a deficiency in tax on the basis that petitioner had

omitted the payment as an item of gross income (described as

“wages”) of $115,500.   Petitioner timely petitioned this Court,

assigning error to respondent’s determination of a deficiency and

averring in support of that assignment that the payment had been

received in settlement of claims for defamation, fraud,

misrepresentation, emotional distress, and age discrimination

related to petitioner’s wrongful discharge from the employ of

Boehringer.   In the petition, petitioner concedes that any

portion of the payment received in settlement of his claim of age

discrimination is an item of gross income and that respondent did

not err in adjusting his income accordingly.    Petitioner

describes the issue for decision as one of “apportionment”,

apportioning the payment between “personal tortious injury” and

the age discrimination claim.   Respondent denies both

petitioner’s assignment of error and the facts averred in support

thereof.

                            Discussion

     Gross income means all income from whatever source derived,

unless excluded by law.   Sec. 61(a); sec. 1.61-1(a), Income Tax

Regs.   Generally, compensation for services, including

termination or severance pay, is an item of gross income.     Sec.
                               - 8 -


61(a)(1); sec. 1.61-2(a)(1), Income Tax Regs.    With an exception

not here relevant, gross income does not include “the amount of

any damages received (whether by suit or agreement * * *) on

account of personal injuries or sickness”.   Sec. 104(a)(2).    “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. (emphasis added).   Only

payments received to settle bona fide disputes may be excluded

under section 104(a)(2).   See, e.g., Taggi v. United States, 35

F.3d 93, 96 (2d Cir. 1994).

     Respondent argues that the payment is an item of taxable

compensation for services, viz, severance pay.   Petitioner does

not disagree that, if the payment is compensation for services,

it is taxable compensation for services.   Rather, petitioner

argues that the payment is not compensation for services but is

damages received in settlement of various claims.   Petitioner

requests that this Court apportion the payment between damages

received on account of his claim of age discrimination (which

petitioner concedes is an item of gross income; see Commissioner

v. Schleier, 515 U.S. 323 (1995) (recovery under the Age

Discrimination in Employment Act of 1967 is not excludable under

section 104(a)(2)) and damages received on account of his other
                               - 9 -


claims, which petitioner argues are claims for damages on account

of personal injuries within the meaning of section 104(a)(2)

(section 104(a)(2) damages).   We need not make the apportionment

requested by petitioner because petitioner has failed to prove

that he received any section 104(a)(2) damages.

     When petitioner was laid off by Boehringer, he, like other

laid off employees, was offered a package of benefits that

included a special severance payment.   To obtain a special

severance payment, petitioner had to sign the separation

agreement, which he did not do.   Instead, petitioner entered into

negotiations with Boehringer concerning his rights “under the

ADEA and any other theories that are meritorious”.   Apparently,

Boehringer did not think much of petitioner’s claims, but did

offer to increase what it described as “the original severance

offer” by $2,500.   Petitioner and Boehringer ultimately entered

into the final agreement and, pursuant thereto, petitioner

received the payment.

     Upon consideration of all the facts and circumstances, we

believe and so find that Boehringer simply extended the period

during which petitioner could accept its original offer of a

special severance payment, sweetening it a bit, and, eventually,

petitioner accepted the sweetened offer.   That finding is

supported by the terms of the final agreement, which, in relevant

part, is substantially the same as the separation agreement.    The
                              - 10 -


testimony of Cassandra Nikituk, director of human resources for

Boehringer and one familiar with personnel matters in connection

with the restructuring, also supports that finding.    Ms. Nikituk

was the Boehringer official responsible for determining the

amount of the special severance payment that would be offered to

each laid off employee and for authorizing payment of that

amount.   She testified that the payment to petitioner was not the

only case in which an offer of a special severance payment to a

laid off employee was extended.   Although Ms. Nikituk was not

directly involved in the negotiations with petitioner, she

testified that, at one point, she was asked by a Boehringer

attorney to approve (and she did approve) an additional $2,500 as

“a severance amount to settle this case amicably”.    Lastly,

Ms. Nikituk testified that it “was always * * * [her]

understanding” that the payment to petitioner constituted

severance pay.

     In Webb v. Commissioner, T.C. Memo. 1996-50, where we

determined that an amount received by an employee leaving the

employ of International Business Machines Corp. (IBM) was

severance pay based on tenure and not damages, we accepted the

dictionary definition of the term “severance pay” as “an

allowance usually based on length of service that is payable to

an employee on termination of employment.”   (Citing Webster’s

Ninth Collegiate Dictionary (1985).)   That is an appropriate
                              - 11 -


definition for this case, and, we believe, it describes a

portion, if not all, of both the special severance payment

offered to petitioner and the payment.   Special severance

payments were determined under a schedule generally applicable to

laid off employees, based on years of service and base salary.

That is enough for us to find that at least a portion of each

special severance payment was severance pay.   We assume that each

special severance payment was also made in consideration of the

various releases contained in each of the separation agreements.

We need not determine, however, what portion of the consideration

in each special severance payment--and, in particular, the

special severance payment offered to petitioner--was attributable

to such releases because petitioner does not argue (nor would we

find based on the evidence in this case) that any of the amount

of the special severance payment offered to petitioner

constituted section 104(a)(2) damages.   Cf., e.g., Webb v.

Commissioner, supra (payment made to departing IBM employee who

signed a similar release was not sec. 104(a)(2) damages); Taggi

v. United States, 35 F.3d 93 (2d Cir. 1994) (similar result with

respect to AT&T Communications, Inc., employee signing a “full

legal release”).   Therefore, since we have found that Boehringer

simply extended the period during which petitioner could accept

its original offer of a special severance payment, sweetening it

a bit, the payment does not constitute section 104(a)(2) damages
                              - 12 -


at least to the extent of $112,542.21 (the amount of the special

severance payment offered to petitioner).

     The remaining portion of the payment, $2,957.79 (the

additional payment) is not separately dealt with in the final

agreement, and, therefore, we must look outside of the final

agreement to determine its character.    Cf. Stocks v.

Commissioner, 98 T.C. 1, 10 (1992) (“If the settlement agreement

lacks express language stating what the settlement amount was

paid to settle, then the most important factor in determining any

exclusion under section 104(a)(2) is ‘the intent of the payor’ as

to the purpose in making the payment.”) (citing Knuckles v.

Commissioner, 349 F.2d 610, 613 (10th Cir. 1965), affg. T.C.

Memo. 1964-33);   Metzger v. Commissioner, 88 T.C. 834, 847-848

(1987), affd. without published opinion 845 F.2d 1013 (3d Cir.

1988).   Ms. Nikituk was respondent’s witness.   Although she did

not directly participate in the negotiations with petitioner, she

testified that she understood the additional amount to be “a

severance amount to settle this case amicably”.   Petitioner could

have called someone from Boehringer with direct knowledge of

those negotiations in an attempt to support petitioner’s position

that some portion of the additional amount (or, indeed, the

payment itself) was section 104(a)(2) damages, but he failed to

do so.   We can infer from that failure that such testimony would

not have been favorable to petitioner.    Mecom v. Commissioner,
                              - 13 -


101 T.C. 374, 386 (1993), affd. without published opinion 40 F.3d

385 (5th Cir. 1994); Pollack v. Commissioner, 47 T.C. 92, 108

(1966), affd. 392 F.2d 409 (5th Cir. 1968); Wichita Terminal

Elevator Co. v. Commissioner, 6 T.C. 1158, 1165 (1946), affd. 162

F.2d 513 (10th Cir. 1947).   We are thus left only with

petitioner’s testimony that some portion of the additional

payment was in settlement of claims for section 104(a)(2)

damages.   Petitioner’s testimony that he made specific claims to

Boehringer on grounds other than his ADEA claim and that those

claims were settled pursuant to the final agreement was after-

the-fact, self-serving, and uncorroborated.   We are unwilling to,

and need not, accept that testimony at face value.    See, e.g.,

Day v. Commissioner, 975 F.2d 534, 538 (8th Cir. 1992), affg. in

part, revg. in part T.C. Memo. 1991-140; Liddy v. Commissioner,

808 F.2d 312, 315 (4th Cir. 1986), affg. T.C. Memo. 1985-107.

Petitioner has failed to prove that Boehringer intended any of

the additional payment to be section 104(a)(2) damages.   More

generally, petitioner has failed to prove that any of the

additional payment constitutes section 104(a)(2) damages.

     In conclusion, petitioner has failed to prove that any of

the payment constitutes section 104(a)(2) damages.    Respondent’s

determination of a deficiency in tax is sustained.


                                         Decision will be entered

                                    for respondent.
