                           T.C. Memo. 1997-9



                      UNITED STATES TAX COURT



                  GARY A. SIMKO, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5120-95.                       Filed January 6, 1997.



     Gary A. Simko, pro se.

     Donald K. Rogers, for respondent.


             MEMORANDUM FINDINGS OF FACT AND OPINION



     PANUTHOS, Chief Special Trial Judge:      This case was heard

pursuant to the provisions of section 7443A(b)(3) and Rules 180,

181, and 182.1   Respondent determined a deficiency in


     1
        All section references are to the Internal Revenue Code
as amended, unless otherwise indicated. All Rule references are
to the Tax Court Rules of Practice and Procedure.
                                - 2 -

petitioner's 1990 Federal income tax in the amount of $4,388 and

an accuracy-related penalty under section 6662 in the amount of

$878.    After concessions,2 the only issue for decision is whether

amounts received by petitioner in settlement of a lawsuit are

excludable from income under section 104(a)(2).

                          FINDINGS OF FACT

     Some of the facts have been stipulated, and they are so

found.    The stipulation of facts and the attached exhibits are

incorporated herein by this reference.    At the time of filing the

petition, petitioner resided at Eaton, Ohio.

     On June 9, 1989, petitioner commenced legal action against

his former employer, United Cable TV of Oakland, Inc. (United),

for damages related to the termination of his employment with

United on July 7, 1986.    Petitioner's complaint asserted claims

of breach of contract, negligence, and intentional infliction of

emotional distress.    Petitioner's complaint further alleged that,

as a result of United's conduct, petitioner suffered loss of

employment and employability, loss of past and future earnings,

emotional pain and suffering, mental anguish, and defamation of

character.


     2
        Respondent concedes that: (1) Petitioner is not liable
for the accuracy-related penalty under sec. 6662 and (2) if it is
determined that the amounts in question constitute taxable income
to petitioner, "petitioner is entitled to an itemized deduction
in the amount by which petitioner's total legal fees and costs of
$7,469.20 exceed 2 percent of petitioner's adjusted gross
income".
                                 - 3 -

     Petitioner and United agreed to a nonbinding mediation

proceeding, held on February 1, 1990.        Prior to the mediation

proceeding, petitioner submitted a mediation summary which stated

in part:

          [Petitioner] was employed by [United] on a full
     time permanent basis starting in May 1985. * * * The
     Personnel Policy Handbook which is relevant to this
     case contains several important passages which confirm
     that [petitioner's] employment required good cause for
     discharge * * *.

          Nevertheless, [United] has contested in this
     litigation the nature of employment, claiming that
     [petitioner] was an at-will employee and could be fired
     without just cause.

          * * * After being hired * * * [petitioner's]
     employment continued without incident, and with good
     performance in the ensuing months. * * *

          In November of 1985, * * * despite assurances of
     continued job security, a great number of people began
     losing their jobs. In each case, [United] * * * had
     put together stated reasons or allegations supposedly
     justifying the terminations. * * *

          [United's] alleged reason for terminating
     [petitioner], although [United] claims not to have
     needed a reason, was that [petitioner] was guilty of
     misconduct. [United] alleges that on July 1, 1986,
     [petitioner] got into the wrong truck to go out to do
     field work. * * *

     *       *       *       *           *         *       *

          Analysis of the losses suffered by [petitioner] is
     being performed currently by an expert, * * * Mr.
     Charles Monroe, and it is expected that he may have a
     verbal informal and unofficial calculation by the time
     of Mediation, concerning the projected losses of
     [petitioner] in terms of benefits, back pay and front
     pay. * * *
                                 - 4 -

The mediation summary does not address the tort type claims

raised by petitioner in his complaint, and does not discuss any

personal injury suffered by petitioner.     The mediation panel,

upon evaluation of each party's respective position, decided that

United should pay petitioner $20,000 in damages.     On March 15,

1990, petitioner and United agreed to accept the mediation

panel's evaluation, and entered a stipulation and order for

dismissal.    Petitioner signed a settlement statement on April 6,

1990, acknowledging his receipt of the settlement proceeds (less

attorney's fees and expenses).    The statement of settlement does

not identify or place a value on the specified claims of

petitioner.

                               OPINION

     As a general rule, the Commissioner's determinations are

presumed correct, and the taxpayer bears the burden of proving

that those determinations are erroneous.     Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933).     Except as otherwise

provided, gross income includes income from all sources.       Sec.

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

In this regard, statutory exclusions from income must be narrowly

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

2159, 2163 (1995).

     Section 104(a)(2) excludes from gross income "the amount of

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

account of personal injuries or sickness".     This exclusion is
                                - 5 -

warranted when:    (1) The underlying cause of action giving rise

to the recovery of the funds in question is based upon tort or

tort-type rights and (2) the funds are received on account of

personal injury or sickness.    O'Gilvie v. United States, 519 U.S.

___, 117 S. Ct. 452 (1996); Commissioner v. Schleier, 515 U.S. at

____, 115 S. Ct. at 2163; P & X Mkts., Inc. v. Commissioner, 106

T.C. 441, 443-444 (1996); sec. 104(a)(2); sec. 1.104-1(c), Income

Tax Regs.   Where damages are received pursuant to a settlement

agreement, the nature of the claim that constitutes the actual

basis for settlement controls whether such damages are excludable

under section 104(a)(2).    United States v. Burke, 504 U.S. 229,

237 (1992); Foster v. Commissioner, T.C. Memo. 1996-276.     "[T]he

critical question is, in lieu of what was the settlement amount

paid?"   Bagley v. Commissioner, 105 T.C. 396, 406 (1995).    In

determining the answer to this question, the most important

factor is the intent of the payor.      Robinson v. Commissioner, 102

T.C. 116, 127 (1994), affd. in part and revd. in part 70 F.3d 34

(5th Cir. 1995).

     While the parties' settlement agreement does not in any

manner allocate the proceeds to any particular claim raised by

petitioner, the settlement reflects the parties' willingness to

accede to the conclusions of the mediation panel.     Therefore, we

find that the mediation panel's evaluation served as the basis of

the settlement.    Petitioner's mediation summary, furnished to the

panel prior to the mediation hearing, asserted claims that United
                                 - 6 -

breached an employment agreement by terminating petitioner.          The

mediation summary, however, did not discuss any of the tort-

related claims contained in petitioner's original complaint.

Moreover, the mediation summary's proposal of damage amounts

appears to be based upon petitioner's lost earnings, rather than

upon any specific personal injury sustained by petitioner.          The

mediation panel's evaluation, as well as the settlement in

question, were based upon the claim that United had breached an

employment contract in terminating petitioner, resulting in

economic damages from loss of benefits and wages.          Therefore,

petitioner has failed to meet his burden of proving that the

settlement was based upon tort or tort-type claims.          Furthermore,

petitioner has failed to meet his burden of proving that the

settlement proceeds were paid on account of personal injuries.

Accordingly, we sustain respondent's determination.

     To reflect the foregoing,



                                              Decision will be entered

                                         under Rule 155.
