                       T.C. Memo. 2000-24



                     UNITED STATES TAX COURT



            ALAIN AND MONIQUE MASSOT, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10086-98.                   Filed January 19, 2000.



     Cynthia C. Smith and George A. Berman (specially

recognized), for petitioners.

     Christine Colley and Maureen T. O’Brien, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     JACOBS, Judge: Respondent determined a $191,580 deficiency in

petitioners’ 1992 Federal income tax.   The sole issue for decision

is whether the $600,000 Alain Massot (petitioner) received in 1992
                                        - 2 -

as a result of the termination of his employment is excludable from

petitioners’ gross income pursuant to section 104(a)(2).

       Unless otherwise indicated, all section references are to the

Internal Revenue Code as in effect for the year in issue, and all

Rule   references     are   to    the    Tax    Court   Rules   of   Practice   and

Procedure.

                                 FINDINGS OF FACT

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

stipulations of facts and attached exhibits are incorporated herein

by this reference.

Background

       Petitioners resided in Arlington, Massachusetts, at the time

they filed their petition.          They timely filed a joint 1992 income

tax return.

       Petitioner was born and raised in Brittany, France.                      He

studied    at   the   Institute         of   Chemistry    of    Paris,   Sorbonne

University, receiving a degree in chemical engineering in 1970.

Millipore, S.A. and Millipore Corp.

       As of September 22, 1992, petitioner was the corporate vice

president for marketing of Millipore Corp. (Millipore), a Fortune

500 company, and a member of its 12-person executive committee.

       Millipore’s business originally was based on the manufacturing

and sale of precise membrane filters capable of removing bacteria

and other harmful particles so as to purify water, air, gas, and
                                    - 3 -

other fluids in the pharmaceutical, microelectronic, food and

beverage, and aircraft industries.             Later, Millipore diversified

into the manufacturing and sale of precision instrumentation,

chromatography, and the synthesis of DNA and peptides.

     Petitioner      began    working    for     Millipore,      S.A.,   a   French

subsidiary      of   Millipore,     in     1971       as   a     technical      sales

representative in third-world countries.               He was promoted numerous

times–-first as area manager for the USSR, the Middle East, and

Africa, then to sales manager, and in 1979, to general manager and

vice president of Millipore, S.A., where he was responsible for the

company’s European membrane division.

     Millipore,      S.A.    contributed    to    a    retirement      account   for

petitioner in France.

Relocation to the United States

     On   May   7,   1986,    petitioner    was       promoted    to   senior    vice

president of worldwide sales for Millipore (for the membrane

division).      Petitioner’s promotion was announced in a general

distribution memorandum.1 Petitioner’s promotion required his and


     1
          General distribution memoranda were used by Millipore
to communicate quickly with its employees worldwide. Pursuant to
Millipore’s practice, such a memorandum would first be duplicated
and distributed to employees in Millipore’s Bedford,
Massachusetts, headquarters, then faxed to the foreign
subsidiaries with instructions for further dissemination to
Millipore’s worldwide employees. Subsequently, the memorandum
would be delivered into the mailboxes of the individual
employees, displayed on bulletin boards, and translated into
foreign languages.
                                 - 4 -

his family’s relocation from Paris to Massachusetts.      Petitioner

ceased actively working for and receiving a salary from Millipore,

S.A.; he did, however, continue to receive a French pension. (On

February 2, 1996, petitioner became a U.S. citizen.)      In his new

position, petitioner managed the sales operations of Millipore’s

subsidiaries.    Approximately 2 years later, petitioner was promoted

to president of Millipore’s analytical group.

      On December 22, 1989, petitioner was promoted to president of

MilliGen/Biosearch, a startup division of Millipore (with $16

million in sales and $20 million in losses).      This promotion was

announced in a general distribution memorandum, which stated in

relevant part:

      This election is evidence of the critical role Alain
      plays in the leadership of the corporation, and of the
      diverse management responsibilities he has successfully
      undertaken in his many years of service with Millipore.
      He has been an important leader directing the evolution
      of our European business. He has also been instrumental
      in the success of the Analytical Group, where he
      strengthened the management team and helped groom his own
      successor as president. And now, as president of
      MilliGen/Biosearch, he has assumed one of our most
      difficult managerial assignments in a business that is
      vital to our future.

      On August 23, 1991, petitioner was promoted to Millipore’s

corporate vice president of marketing.     Petitioner was responsible

for   marketing,    promotion,    public    relations,   merger   and

acquisitions, new business development, and long-range planning for

the entire company.   (Petitioner held this position at the time he
                                     - 5 -

was terminated, see infra.)          This promotion was announced in a

general distribution memorandum.

     During petitioner’s tenure at Millipore, the company grew from

approximately $24 million in annual sales (in 1971) to $766 million

(by 1992).     Petitioner played a significant role in building the

company.

     As of early 1992, petitioner viewed Millipore and its 5,000

worldwide employees like family.        Likewise, he was highly regarded

in the company.     Petitioner anticipated that eventually he would

become president of Millipore.

Petitioner’s Termination

     During an early morning meeting on September 22, 1992, John

Gilmartin, chief executive officer and chairman of the board of

Millipore, informed petitioner that his employment with Millipore

was being terminated effective immediately; Mr. Gilmartin did not

provide petitioner with any reason for this decision.2           Petitioner

was shocked; he became pale and began trembling.          Mr. Gilmartin

handed     petitioner   a   letter    containing   Millipore’s    proposed

termination offer. Under the provisions of that letter, petitioner

would continue to receive his salary, benefits, and exercise

certain stock options for a period of 18 months after his departure



     2
          The procedure Mr. Gilmartin followed in terminating
petitioner was not the procedure Millipore managers had been
instructed to follow. These procedures included giving the
employee notice and an explanation for the termination.
                                    - 6 -

on the condition he did not accept a position with a competitor

during    that   period.    The   letter     further       stated    that   should

petitioner accept employment with a competitor, Millipore reserves

the right to terminate petitioner’s monthly salary payments as well

as his right to exercise his stock options.

     Shortly after the meeting with Mr. Gilmartin, Millipore’s vice

president of human resources instructed petitioner to turn in his

company badge and keys.      After doing so, petitioner met with an

out-placement representative and then was asked to leave the

building.     Petitioner took a few personal items from his desk,

placed them in a box, and walked out of the building. Petitioner

was very distressed and considered suicide.

     At     midday,   Millipore   employees         from    around    the   world

telephoned    petitioner,   inquiring       about    a   general     distribution

memorandum (issued that day) that announced his departure from the

company.     The memorandum read:

     The history of Millipore is full of individuals who have
     shaped the success of our company. Alain Massot most
     certainly has been among the most significant of these
     people. In recent months, however, it has become
     increasingly apparent to Alain that his interests were
     not being fully satisfied within our organization.

     I am sorry to report that Alain will be leaving Millipore
     this month.    I have every confidence that he will be
     greatly successful in whatever endeavors he chooses.

     Alain departs Millipore with my sincere thanks and with
     the best wishes of all of us.
                                       - 7 -

After    receiving     a   copy   of   the    memorandum     from    a   colleague,

petitioner became even more distraught because it falsely implied

that he (1) had voluntarily resigned, and (2) was dissatisfied with

Millipore.

        On September 25, 1992, petitioner sent Mr. Gilmartin a letter

in which he (1) objected to the circulation of the September 22

memorandum, and (2) explained that he was still considering the

company’s termination offer.

Effect on Petitioner

      Petitioner’s physical and emotional state deteriorated as a

consequence of his termination. He gained approximately 20 pounds,

his   cholesterol      level   increased,      he   was    diagnosed     as   having

diabetes, and he lost interest in his marital relations.                  He became

obsessed with his employment termination; he avoided leaving his

home and was unable to sleep.

        Before   his   termination,     petitioner        negotiated     deals   for

Millipore all over the world. Following the termination, he lacked

the confidence required for a successful job interview. He felt he

had been defamed and humiliated before his colleagues and the

entire industry in which he had worked.                   Petitioner was never

offered    an    executive     position      with   a   company     comparable    to

Millipore.       Ultimately, in January 1999, he was offered, and

accepted, a position as vice president for sales and marketing at

a relatively small company.
                                       - 8 -

The Negotiations

     Petitioner engaged counsel both in the United States and

France for advice as to his legal rights as a consequence of his

employment termination. His French attorney advised him that under

French law, in order to obtain recovery against Millipore, he would

have to institute a suit in France against Millipore, S.A. (French

law prohibited abusive dismissal or termination without cause, and

provided     for   compensatory        damages      for     emotional    distress,

indignity, humiliation, and injury to reputation.                   Such damages

were not taxable under French law.) Petitioner’s French counsel

informed petitioner that he had a bona fide claim under French law.

     Additionally, petitioner was informed that potentially he had

legal    rights    under   a    French    collective        bargaining   agreement

governing Millipore, S.A.’s managers and engineers (“convention

collective Ingénieurs et Cadres de la Métallurgie”), which applied

to Millipore employees in France as well as those transferred to

the United States.

        Petitioner’s U.S. counsel informed petitioner that he had

several     possible   causes     of     action     under    Massachusetts    law,

including     invasion     of     privacy,        defamation,     negligent    and

intentional infliction of emotional distress, and negligent firing.

        On October 2, 1992, petitioner’s U.S. counsel wrote Mr.

Gilmartin formally rejecting Millipore’s termination offer, as set

forth in Mr. Gilmartin’s September 22, 1992, letter.                       In the
                                       - 9 -

October      2,   1992    letter,      petitioner’s        counsel    referred   to

petitioner’s rights under the Millipore S.A. collective bargaining

agreement     and    stated     that   petitioner     should     receive:        (1)

Cumulative damages of $977,814, plus (2) 60 percent of his salary

during the period the noncompetition clause would be in effect,

and   (3)    damages      for   termination      without     cause    (the   French

equivalent of outrageous dismissal).                 The $977,814 cumulative

damages were calculated as follows:

   10 months’salary (based on seniority)                                 $190,000
   3 months’ salary (failure to give notice)                               57,000
   2 years’ salary (termination without cause)                            456,000
   French pension fund contribution                                        30,000
   Millipore participation plan contribution                               15,077
   Millipore savings plus match                                             4,237
   Millipore incentive (restricted) stock options                         175,500
   Millipore non-qualified stock options                                   50,000

             TOTAL                                                        977,814

      This    letter     was    referred    to   Geoffrey    Nunes,    Millipore’s

general counsel and senior vice president.                   After reviewing the

letter,     Mr.   Nunes    requested       the   parties    to   meet.   Millipore

anticipated that petitioner would institute suit in Massachusetts

for claims based in tort, as enumerated in petitioner’s counsel’s

October 2 letter, and had potential causes of action in France.

Millipore’s management recognized that petitioner’s claims posed

the risk of significant financial exposure to the company.

      The parties met on October 9, 1992.             During the course of the

meeting, a heated discussion ensued.              Mr. Nunes initially took the

position that petitioner did not have any French or U.S. law claims
                             - 10 -

against Millipore or Millipore, S.A.     Petitioner’s U.S. counsel

countered by threatening legal action.    Ultimately, the parties

were able to negotiate the basic terms of a settlement agreement

(the agreement).   The agreement, in relevant part, provided:

         3. Upon the parties’ execution of this Settlement
    Agreement Millipore Corporation will pay in satisfaction
    of the obligations undertaken hereunder by Millipore
    Corporation and Millipore S.A. to Mr. Massot the sum of
    seven hundred fifty-thousand dollars ($750,000), with the
    sum of six hundred thousand dollars ($600,000) to be paid
    within 24 hours of the signing of this Settlement
    Agreement * * *. Millipore Corporation will also deposit
    in an escrow account * * * within 24 hours of the signing
    of this Settlement Agreement, the remaining sum of one
    hundred and fifty thousand dollars ($150,000). * * * It
    is expressly understood and agreed that the entire sum
    set forth in this paragraph is damages for personal
    injury allegedly suffered by Mr. Massot on account of
    termination without cause by Millipore Corporation and
    Millipore S.A., damaged reputation and emotional distress
    caused by Millipore Corporation, which allegations
    Millipore Corporation and Millipore S.A. deny.

         4.   Millipore Corporation and Millipore S.A. are
    paying Mr. Massot $750,000 which Mr. Massot accepts as
    consideration for this settlement agreement and as
    damages for alleged personal injury (and not as
    remuneration for services performed, for which he
    precisely waives any claim), including the full release
    of all claims. Mr. Massot further agrees that he will
    not apply for or claim unemployment compensation benefits
    provided by the French government based on his past
    employment with Millipore S.A.

         5. The parties shall treat all payments * * * as
    payment in settlement of claims for personal injury and
    shall not treat or report these payments in any way for
    tax purposes or otherwise as compensation for services
    rendered.

     *        *        *        *         *        *        *

          7. Mr. Massot agrees that from and after the date
     of this Settlement Agreement through December 31, 1993,
                              - 11 -

     he will not be directly or indirectly employed by,
     consult for, or in any way provide employee, consultant
     or contract work or services for, or serve as a director
     of, or have any interest as owner or stockholder in, any
     company, partnership, or other business association * *
     * which is engaged in competition with the lines of
     business of Millipore Corporation and Millipore S.A.
     existing on September 30, 1992, in any territory in which
     Millipore Corporation or Millipore S.A. was then doing
     business * * *

          8. The only remedy of Millipore Corporation and
     Millipore S.A. for breach by Mr. Massot of his
     obligations set forth in Paragraph 7 will be the
     forfeiture of the $150,000 which would otherwise be paid
     to Mr. Massot on January 1, 1994. * * *

     *        *        *        *         *        *        *

          13. This Settlement Agreement shall not in anyway
     [sic] be construed as an admission by Millipore
     Corporation    or   Millipore    S.A.   of    liability,
     responsibility and/or any wrongdoing against Mr. Massot
     which makes Millipore Corporation or Millipore S.A.
     liable to Mr. Massot in any way, and Millipore
     Corporation and Millipore S.A. disclaim any liability to
     Mr. Massot. * * *

     *        *        *        *         *        *        *

          15. This Settlement Agreement shall not in any way
     be construed as an admission by Mr. Massot of liability,
     responsibility and/or any wrongdoing against Millipore
     Corporation or Millipore S.A. which makes Mr. Massot
     liable to Millipore Corporation or Millipore S.A. in any
     way, and Mr. Massot disclaims any liability to Millipore
     Corporation and Millipore S.A.

     The agreement was executed on November 30, 1992.   On the same

day, Mr. Nunes sent a letter to petitioner’s U.S. counsel in which

he stated Millipore’s position that “in the event that any tax

authority * * * successfully disputes the treatment of sums paid to
                                   - 12 -

Mr. Massot as ‘damages,’ the parties agree that each will be

responsible for its (or his) own tax liability.”

Settlement Payment

       In accordance with the agreement, on November 30, 1992,

Millipore transferred (by wire) $600,000 in French francs to

petitioner’s French bank account and deposited $150,000 into an

escrow account at the Bank of Boston.

Treatment of Settlement Proceeds

       Millipore did not report the $600,000 settlement proceeds as

“wages, tips, other comp.” on the 1992 Form W-2 it issued to

petitioner; petitioners did not report the $600,000 settlement

proceeds as income on their 1992 tax return.

                                   OPINION

       The sole issue for decision is whether the $600,000 petitioner

received as a result of the termination of his employment is

excludable from petitioners' 1992 gross income as section 104(a)(2)

damages received on account of personal injury or sickness.

       Except as otherwise provided, gross income includes income from

all sources.     See sec. 61; Commissioner v. Glenshaw Glass Co., 348

U.S.    426,   429-430   (1955).    Petitioners’   settlement   proceeds

constitute gross income unless expressly excepted by another Code

provision.     See Commissioner v. Schleier, 515 U.S. 323, 328 (1995);

Rozpad v. Commissioner, 154 F.3d 1, 3 (1st Cir. 1998), affg. T.C.

Memo. 1997-528.
                                      - 13 -

       Pursuant to 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”.         The applicable regulations provide

that “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.           A tort is a “‘civil wrong, other

than    breach of contract, for which the court will provide a remedy

in the form of an action for damages.’” United States v. Burke, 504

U.S. 229, 234 (1992)(quoting Keeton et al., Prosser and Keeton on

the    Law   of   Torts    2   (5th   ed.   1984)).        The   availability   of

compensatory remedies is critical, see Commissioner v. Schleier,

supra at 333, and such remedies are intended to redress intangible

elements of injury deemed important (even though not pecuniary in

their     consequences),       including    emotional      distress,   pain     and

suffering, impairment of reputation, personal humiliation, and

mental anguish.        See, e.g., United States v. Burke, supra at 235-

236.    Thus, in order to exclude damages from gross income pursuant

to section 104(a)(2), a taxpayer must prove: (1) The underlying

cause of action is 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   336-337;    Rozpad    v.
                                - 14 -

Commissioner, supra at 5; Cade v. Commissioner, T.C. Memo. 1999-394.

We address both requirements.

Tort or Tort Type Rights

     Where amounts are received pursuant to a settlement agreement,

the nature of the claim that was the actual basis for settlement

controls whether such amounts are excludable from gross income under

section 104(a)(2), and not the validity of the claim.      See United

States v. Burke, supra at 237; Woodward v. Commissioner, 397 U.S.

572 (1970); Fabry v. Commissioner, 111 T.C. 305 (1998). The crucial

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).   Determining the nature of the claim is a factual

inquiry.     See   Fabry   v.   Commissioner,   supra;   Robinson   v.

Commissioner, 102 T.C. 116, 127 (1994), affd. in part, revd. in

part, and remanded on another issue 70 F.3d 34 (5th Cir. 1995);

Burditt v. Commissioner, T.C. Memo. 1999-117.   State law determines

the nature of the legal interests involved.     See, e.g., Roemer v.

Commissioner, 716 F.2d 693, 697 (9th Cir. 1983), reversing on

another issue 79 T.C. 398 (1982).   Federal law supplies the rule of

decision in determining whether a given payment is subject to

Federal income tax.    See Helvering v. Stuart, 317 U.S. 154, 162

(1942).

     In determining the purpose of the payment, we begin by looking

at the language in the settlement agreement. The language contained
                                 - 15 -

in an agreement will be respected to the extent the settlement

agreement is entered into in an adversarial context, at arm’s

length, and in good faith. See, e.g., Fono v. Commissioner, 79 T.C.

680, 694 (1982), affd. without published opinion 749 F.2d 37 (9th

Cir. 1984); Srivastava v. Commissioner, T.C. Memo. 1998-362. “If the

settlement agreement lacks express language stating that the payment

was (or was not) made on account of personal injury, then the most

important fact in determining how section 104(a)(2) is to be applied

is ‘the intent of the payor’ as to the purpose in making the

payment.”   Metzger v. Commissioner, 88 T.C. 834, 847 (1987), affd.

without published opinion 845 F.2d 1013 (3d Cir. 1988).

     Here, paragraph 3 of the agreement provides that the $750,000

petitioner is to receive from Millipore constitutes “damages for

personal injury allegedly suffered by Mr. Massot on account of

termination without cause by Millipore Corporation and Millipore,

S.A., damaged reputation and emotional distress caused by Millipore

Corporation”.

      We are satisfied that a portion of the settlement proceeds

paid by Millipore to petitioner was to settle tort claims for

personal injury.   Relying on both Massachusetts and French law, the

parties understood that petitioner had colorable and bona fide

causes of action based on tort or tort type rights (such as

defamation,   invasion   of   privacy,    libel,   outrageous   dismissal,

intentional or negligent infliction of emotional distress, and
                                        - 16 -

termination       without     cause).     We     believe   that    Millipore    took

petitioner’s claims seriously, particularly those in Massachusetts.3

     The manner in which Millipore terminated petitioner potentially

could       be   considered     tortious.      The     nature     of   petitioner’s

relationship       to   the    company   and     the   details     concerning   the

termination of his employment were highly personal. Publishing the

general distribution memorandum globally (which falsely indicated

that petitioner was dissatisfied with his job and had resigned)

without petitioner’s consent, to 5,000 employees of a Fortune 500

company on the morning of petitioner’s firing, could be deemed a

tactic by Millipore to force petitioner to leave quickly and


        3
          Possible causes of action in Massachusetts included:
(1) Invasion of privacy; disclosure of private facts about an
employee to other employees is a tort under the Right of Privacy
Act, Mass. Gen. Laws, ch. 214, sec. 1B (1984); Bratt v. IBM
Corp., 467 N.E.2d 126, 135-136 (Mass. 1984) (test for determining
whether communication of personal information about an employee
by an employer violates the statutory right of privacy requires a
balancing of the “employer’s legitimate business interest in
obtaining and publishing the information against the
substantiality of the intrusion on the employee’s privacy
resulting from the disclosure”); disclosure of private
information about an employee to other employees constitutes
sufficient publication to maintain a libel action, see Bander v.
Metropolitan Life Ins. Co., 47 N.E.2d 595 (Mass. 1943); (2)
defamation pursuant to Mass. Gen. Laws, ch. 231, sec. 92 (1986);
if a plaintiff shows that a defendant in an action for libel
acted with malice in making a defamatory statement, the plaintiff
may recover even if the statement is true, see Shaari v. Harvard
Student Agencies, Inc., 691 N.E. 2d 925, 927 (Mass. 1998);
damages for defamation and libel include mental suffering, harm
to reputation and standing in the community, mental anguish, and
personal humiliation; (3) negligent and intentional infliction of
emotional distress caused by the manner and effect of discharge,
see Agis v. Howard Johnson Co., 355 N.E.2d 315 (Mass. 1976); (4)
unfair termination; and (5) negligent firing.
                                 - 17 -

quietly.   By virtue of Millipore’s manner of discharge, petitioner

was humiliated.   And petitioner’s mental anguish was so severe that

he considered suicide.

     We are mindful that pursuant to paragraph 3 of the agreement,

Millipore denied that petitioner suffered personal injuries or that

it bore any responsibility for causing them.          In our opinion, this

disclaimer   is   merely   boilerplate    language;    that   is,   standard

operating procedure for a settlement.

     Although we do not believe that the entire $750,000 was paid

for personal injury as recited in the agreement, see infra, we are

satisfied that the agreement was in other respects entered into in

an adversarial setting, at arm’s length, and in good faith. Hostile

negotiations ensued; these negotiations were undertaken in the

parties’ good faith belief that they had to either resolve their

bona fide dispute or litigate petitioner’s claims. See, e.g., Taggi

v. United States, 35 F.3d 93, 96 (2d Cir. 1994).         Millipore wanted

to limit its financial exposure. Mr. Nunes took into consideration

(a) what it was going to cost Millipore to defend petitioner’s

claim, (b) what was the likelihood of Millipore’s losing, and (c)

what the maximum cost to Millipore would be if it lost.         He was more

concerned about the dollar cost to Millipore than the merits of

petitioner’s claims.

     We conclude that, from Millipore’s viewpoint, the $750,000

settlement was partly attributable to a desire to avoid a lawsuit
                                       - 18 -

in    Massachusetts      seeking     personal        injury   damages   for   damaged

reputation and emotional distress caused by Millipore’s conduct in

terminating petitioner’s employment. Moreover, we believe Millipore

recognized that petitioner’s termination gave rise to potential

causes of action under French law for termination without cause (a

tort,    in   nature)    as   well    as    a   potential      recovery    under   the

collective bargaining agreement covering managers and engineers.

Personal Injuries or Sickness

       To prevail, petitioners must also prove that the proceeds

received from Millipore were on account of personal injuries or

sickness.       Personal injury includes both tangible and intangible

harms.    See    Commissioner v. Schleier, 515 U.S. at 330 n.4.                 These

harms include pain and suffering, emotional distress, and harm to

reputation or other consequential damages, such as embarrassment,

humiliation, and mental anguish.                See United States v. Burke, 504

U.S. at 239; Knevelbaard v. Commissioner, T.C. Memo. 1997-330.

       On the basis of the documentary evidence and credible testimony

in this case, we conclude that petitioner suffered serious and

prolonged emotional and physical injury arising from Millipore’s

termination.      The    abrupt    manner       in   which    Millipore    terminated

petitioner dramatically affected him, resulting in the decline of

his   physical     and   emotional     well-being.        He    suffered   emotional

distress (embarrassment, humiliation, and mental anguish) manifested

by both mental and physical symptoms, as well as harm to his
                                 - 19 -

reputation (i.e., difficulty in finding a comparable position). See

Church v. Commissioner, 80 T.C. 1104, 1108 (1983). Without a doubt,

here a link between petitioner’s firing and his personal injury

exists. See sec. 104(a)(2); Commissioner v. Schleier, supra at 330.

The Massachusetts law upon which petitioner’s causes of action were

based allows recovery for personal injury and intangible harms

petitioner suffered. See Agis v. Howard Johnson Co., 371 Mass. 140,

355 N.E.2d 315 (1976).

     As previously stated, despite the language in the agreement

which states that the entire $750,000 is for personal injury, we do

not believe that the entire amount payable to petitioner was on

account of personal injuries or sickness.           Rather, we believe that

petitioner’s counsel placed such language in the agreement in an

attempt to have the moneys petitioner was to receive from Millipore

come within the purview of section 104(a). Millipore did not object

to such language because from Millipore’s viewpoint the language was

inconsequential.

     In our opinion, the settlement represented (1) severance

compensation, (2) compensation for petitioner’s agreement not to

accept   employment   with   a   competitor        of     Millipore,   and    (3)

compensation   for    personal   injuries     or        sickness   suffered   by

petitioner as a result of his firing.

     Considering all the facts as revealed by the record, we

conclude that 45.6 percent of the overall $750,000 settlement
                               - 20 -

package was for severance compensation and petitioner’s agreement

not to accept employment with a competitor of Millipore, and 54.4

percent was on account of petitioner’s personal injuries or sickness

arising from his firing.4   Our reasoning for this allocation is as

follows.

     When petitioner’s employment with Millipore was terminated on

September 22, 1992, petitioner’s annual salary was approximately

$228,000.   Thus, the 18 months’ severance portion of Millipore’s

offer was approximately $342,000.       Reducing the overall $750,000

settlement package by $342,000 leaves $408,000, or 54.4 percent, for

the personal injury portion of the settlement package.

     On the basis of this 54.4-percent allocation, we conclude that

$326,400 of the $600,000 petitioner received in 1992 was paid on

account of personal injuries or sickness and is excludable from

petitioners’ gross income pursuant to section 104(a)(2), and the

balance of $273,600 is taxable.




     4
          As stated, petitioner’s claims against Millipore did
not sound solely in tort; petitioner’s claims were for breach of
the employment contract as well. Millipore initially offered
petitioner a severance package including 18 months’ salary. We
infer that the settlement petitioner accepted in lieu of that
offer incorporated the element of severance pay, though not
designated as such in the agreement.
                              - 21 -

     In reaching our conclusions herein, we have considered all

arguments presented and, to the extent not discussed above, find

them to be without merit.   To reflect the foregoing,



                                          Decision will be entered

                                       under Rule 155.
