                       T.C. Memo. 1996-275



                     UNITED STATES TAX COURT



       ROBERT C. SODOMA AND GWEN A. SODOMA, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 19881-94.               Filed June 13, 1996.



     Leonard Lanny Leighton, for petitioners.1

     Joni D. Larson, for respondent.


                          MEMORANDUM OPINION

     TANNENWALD, Judge:     Respondent determined a deficiency of

$21,104 in petitioners' 1993 Federal income tax.




1
   Brief amicus curiae was filed by Neil D. Kimmelfield, on
behalf of Ball, Janik & Novack, who are counsel for other
similarly situated taxpayers.
     This case is before us on respondent's motion for summary

judgment under Rule 121.2   The issue for consideration is whether

petitioners may exclude from gross income, under section

104(a)(2), amounts received from Robert C. Sodoma's employer in

consideration for signing a general release and covenant not to

sue agreement.

     The disposition of a motion for summary judgment under Rule

121 is controlled by the following principles:   (1) The moving

party must show the absence of dispute as to any material fact

and that a decision may be rendered as a matter of law; (2) 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; (3) the party opposing the motion cannot rest upon mere

allegations or denials, but must set forth specific facts showing

there is a genuine issue for trial.   Rule 121; Brotman v.

Commissioner, 105 T.C. 141 (1995).

     Respondent's motion is based on a stipulation of facts and

attached exhibits which are incorporated herein by this

reference.

     At the time the petition was filed, petitioners resided in

Austin, Texas.

     Prior to and during a portion of 1993, Mr. Sodoma was

employed by the International Business Machines Corporation

2
   Unless otherwise indicated, all statutory references are to
the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
                                 - 3 -



(IBM).   At some time in 1993, he became eligible to participate

in IBM's Austin Transition Program (retirement program).   In

exchange for the sums and benefits to be received pursuant to the

retirement program, he was required to sign a general release and

covenant not to sue agreement.

     The release agreement provides in part:

          In exchange for the sums and benefits which you
     will receive pursuant to the terms of the Austin
     Transition Program (Name of Individual) (hereinafter
     "you") agrees to release International Business
     Machines Corporation (hereinafter "IBM") and its
     benefits plans 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, the termination of that
     employment or other severance payments or your
     eligibility or participation in the Retirement Bridge
     Leave of Absence. * * *

          * * * 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, state or local law dealing with
     discrimination in employment, including but not limited
     to discrimination based on sex, race, national origin,
     religion, disability, veteran status 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 agreement covers both claims
     that you know about and those that you may not know
     about which have accrued by the time you execute this
     release. * * *

                     *   *   *    *      *   *   *

           You acknowledge and agree that:
                                  - 4 -



          1. The payment and benefits provided pursuant to
     the ATP constitute consideration for this release, in
     that they are payments and benefits to which you would
     not have been entitled had you not signed this release.

                     *   *    *    *      *   *   *

          3. This release does not waive any claims that
     you may have which arise after the date you sign this
     release.

     Mr. Sodoma signed the release on September 28, 1993.

     In addition to the release, the parties have stipulated that

Mr. Sodoma did not have any preexisting claim of age

discrimination, or other unlawful discrimination, against IBM,

either formal or informal, written or oral, pending or inchoate,

at the time the release was signed.

      Pursuant to the retirement program, and as consideration

for the release, Mr. Sodoma received $69,636 from IBM, calculated

on the basis of time of service and rate of pay.      IBM reported

that amount on Mr. Sodoma's W-2 wage statement.

     Except as otherwise provided, gross income includes income

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

Co., 348 U.S. 426 (1955).    While section 61(a) is to be broadly

construed, statutory exclusions from income must be narrowly

construed.   Commissioner v. Schleier, 515 U.S.       , 115 S. Ct.

2159, 2163 (1995); Kovacs v. Commissioner, 100 T.C. 124, 128

(1993), affd. without published opinion 25 F.3d 1048 (6th Cir.

1994).
                                 - 5 -



     Under section 104(a)(2), 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.

     Section 1.104-1(c), Income Tax Regs, provides:

          (c) Damages received on account of personal
     injuries or sickness. * * * 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.

     Thus, an amount may be excluded from gross income only when

it was received both: (1) through prosecution or settlement of an

action based upon tort or tort type rights; and (2) on account of

personal injuries or sickness.     Commissioner v. Schleier, 515

U.S. at    , 115 S. Ct. at 2166-2167; Wesson v. United States, 48

F.3d 894, 901-902 (5th Cir. 1995); Bagley v. Commissioner, 105

T.C. 396, 416 (1995).

     Where damages are received pursuant to a settlement

agreement, as is the case herein,3 the nature of the claim that

was the actual basis for settlement controls whether such damages


3
   In response to a concern of petitioners, we note that we
consider the release agreement to be a settlement or settlement
agreement. See, e.g., Black's Law Dictionary at 1372 (6th ed.
1990) (defining "settle" as "A word of equivocal meaning; meaning
different things in different connections, and the particular
sense in which it is used may be explained by the context or the
circumstances"). In any event, whatever the semantical
description of the release, the focus is on the actual terms of
the document.
                                   - 6 -



are excludable under section 104(a)(2).      United States v. Burke,

504 U.S. 229, 237 (1992); Robinson v. Commissioner, 102 T.C. 116,

126 (1994), affd. in part, revd. in part 70 F.3d 34 (5th Cir.

1995).    "[T]he critical question is, in lieu of what was the

settlement amount paid?"     Bagley v. Commissioner, supra at 406.

     Determination of the nature of the claim is factual.      Bagley

v. Commissioner, supra; Stocks v. Commissioner, 98 T.C. 1, 11

(1992).    The most important element is the intent of the payor.

Robinson v. Commissioner, supra at 127.

     Essential to petitioner's ability to satisfy the first

requirement is the existence of a claim "based upon tort or tort

type rights".    See supra p. 5.    The parties and the amicus curiae

have advanced extensive arguments as to whether such a claim must

have been a valid claim that was asserted prior to the

settlement.    We are satisfied that the only requirement is that

there be a claim which is bona fide, not necessarily valid, i.e.,

sustainable.    Taggi v. United States, 35 F.3d 93, 96 (2d Cir.

1994); Robinson v. Commissioner, supra at 126; Stocks v.

Commissioner, supra at 10.    In this connection, we note that we

have held that claims for potential future personal injuries do

not qualify for exclusion under section 104(a).      Roosevelt v.

Commissioner, 43 T.C 77 (1964); Starrels v. Commissioner, 35 T.C.

646 (1961), affd. 304 F.2d 574 (9th Cir. 1962). Such holdings

imply that there must be an existing claim.     Moreover, while it
                                - 7 -



need not have been previously asserted, the absence of any

knowledge of the claim on the part of the employer-payor

obviously has a negative impact in determining the requisite

intent of the payment.4   Any problems in respect of these factors

are resolved in this case by the stipulation of the parties that

there was no preexisting claim based on age or other unlawful

discrimination.   See supra p. 4.

      Viewing the facts in the light most favorable to petitioner,

see Kroh v. Commissioner, 98 T.C. 383, 390 (1992), it can be

argued that the stipulation as to the absence of a "pre-existing

claim" together with the preservation of future claims by the

release, see supra p. 4, leaves open the possibility of a claim

of discrimination based on the settlement itself.     Such a

possibility has been adverted to in Webb v. Commissioner, T.C.

Memo. 1996-50, and Galligan v. Commissioner, T.C. Memo. 1993-605,

although neither of these cases accepted such an argument as a

ground for decision.   Whatever may be the merits of an assertion

of such a window of opportunity, we see no basis for giving it

any consideration herein.    Petitioners do no more than infer such

an approach; they do not set forth any supporting allegations of

fact in support thereof beyond their general assertions to which

we now turn our attention.


4
    See Foster v. Commissioner, T.C. Memo. 1996-26.
                                - 8 -



     Petitioners' basis for asserting that there are substantial

issues of fact that require denial of respondent's motion is that

they would offer the following evidence:

     (1)   Mr. Sodoma was over 40 years of age at the time he

executed the release.

     (2)   The only consideration for the payment received from

IBM was the execution of the release.

     (3)   IBM did not treat the payment as compensation for

retirement plan purposes.

     (4)   IBM was engaged in a systematic violation of the Age

Discrimination in Employment Act of 1967, Pub. L. 90-202, 81

Stat. 602 (current version at 29 U.S.C. secs. 621-634 (1988))

(ADEA), and age discrimination was its primary concern in

requiring Mr. Sodoma to sign the release agreement.5

     (5)   Mr. Sodoma suffered personal injuries as a result of

the discrimination practices of IBM.

     The only specific factual assertion is that Mr. Sodoma is

within the age group, i.e., over 40, entitled to claim the

benefit of the ADEA.    However, it has been established that a

mere allegation of membership in a protected class is

insufficient to sustain a claim for exclusion under section

104(a).    See Starrels v. Commissioner, 35 T.C. at 648; Galligan

5
   Petitioners make no claim that Mr. Sodoma did not sign the
release voluntarily as the document itself recites.
                                - 9 -



v. Commissioner, supra.    Petitioners' other assertions are

conclusory statements unsupported by specific facts as required

by Rule 121.   See Abramo v. Commissioner, 78 T.C. 154, 164

(1982).

     Given the stipulation as to preexisting claims and in the

absence of specificity in petitioners' allegations, the

circumstances herein are such that respondent has made a prima

facie case that the requirements for exclusion under section

104(a) as enumerated by Commissioner v. Schleier, supra, have not

been satisfied.   The ADEA broadly prohibits arbitrary

discrimination in the workplace based on age.      Commissioner v.

Schleier, 515 U.S. at      , 115 S. Ct. at 2162.   Subject to

certain defenses, the ADEA makes it unlawful for an employer to

discharge any individual between the ages of 40 and 70 because of

such individual's age.    Id. at 2162.   The ADEA provides for two

types of damages: damages for lost wages and additional,

liquidated damages where the employer's actions were willful.        29

U.S.C. secs. 216(b),    626(b) (1994).   The ADEA does not permit a

separate recovery of compensatory damages for typical tort

remedies like pain and suffering or emotional distress.     See

Commissioner v. Schleier, 515 U.S. at       , 115 S. Ct. at 2162,

2165 n.6.

     Petitioners seek to draw comfort from footnote 6 in

Commissioner v. Schleier, 515 U.S. at       , 115 S. Ct. at 2165,
                              - 10 -



which suggests that, outside of the ADEA context, discrimination

can result in intangible personal injuries.   Petitioners do not

explain how they think they could benefit in this respect and, in

any event, fail to set forth sufficient facts in respect of any

such claim.

      In addition to the inadequacies of petitioners' position

previously discussed, we note that petitioners have the burden of

proving the specific amounts of the payments allocable to claims

of tort or tort-type damages for personal injuries.   Failure to

meet this burden results in the entire amount being presumed not

to be excludable.   See Taggi v. United States, 35 F.3d at 96;

Getty v. Commissioner, 91 T.C. 160, 175-176 (1988), affd. as to

this issue, revd. on other issues 913 F.2d 1486 (9th Cir. 1990).6

But see Lane v. United States, 902 F.Supp. 1439 (W.D. Okla.

1995).   The release makes no allocation, and petitioners have set

forth no facts upon which they would rely to prove an allocation.

Indeed, the fact that the $69,639 payment was based on time of

service and rate of pay points in the direction of its having

been severance pay rather than a payment for personal injury.

See Webb v. Commissioner, T.C. Memo. 1996-50, which involved the

same payor and substantially the same plan as involved herein.




6
    See also Whitehead v. Commissioner, T.C. Memo. 1980-508.
                              - 11 -



      In sum, viewing the facts in a light most favorable to

petitioners, Kroh v. Commissioner, supra, we conclude that

respondent has made a prima facie case to support her motion for

summary judgment and that petitioners have failed to come forward

with countervailing assertions having sufficient specificity to

cause us to hold that there is any material issue of fact which

requires a trial.   Under these circumstances, respondent is

entitled to summary judgment as a matter of law.   Rule 121(d);

Hibernia Nat. Bank v. Carner, 997 F.2d 94, 98 (5th Cir. 1993);

Abramo v. Commissioner, supra.7

                               Respondent's motion for summary

                          judgment will be granted and decision

                          will be entered for respondent.




7
    See also Daniels v. Commissioner, T.C. Memo. 1994-591.
