                       T.C. Memo. 1997-434



                     UNITED STATES TAX COURT



          ALLEN L. AND DIANE A. CAREY, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 1670-96.                  Filed September 23, 1997.



     Allen L. and Diane A. Carey, pro se.

     Howard P. Levine, for respondent.



                          MEMORANDUM OPINION


     TANNENWALD, Judge:    Respondent determined a deficiency in

petitioners' Federal income tax in the amount of $27,901 for the

taxable year 1993.
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     This case is before us on respondent's motion for summary

judgment under Rule 121.1   The issue for decision is whether

petitioners may exclude from gross income, under section

104(a)(2), amounts received from petitioner Allen L. Carey's

employer, International Business Machines Corp. (IBM), upon

termination of his employment, on the ground that such amounts

represented damages received on account of personal injury.

     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 a 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; and (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, 142 (1995).

     Petitioners resided in Tampa, Florida, at the time they

filed their petition.

     Petitioner Allen L. Carey (Mr. Carey) was employed by Skill

Dynamics, part of IBM, until his termination in 1993.   He

received a lump-sum payment of $85,702.54 from IBM in June of

1
    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 -

1993 (the lump-sum payment) in connection with his termination.

The lump-sum payment was termed "separation pay" by IBM, and the

amount of the lump-sum payment was based on length of service and

salary.

     On June 30, 1993, Mr. Carey signed a General Release and

Covenant Not to Sue (the release) as a condition for the sums and

benefits, including the lump-sum payment, he received pursuant to

the terms of the Skills Dynamics Transition Program (SDTP

Program) offered by IBM.   Pertinent sections of the release read

as follows:

          In exchange for the sums and benefits which you
     will receive pursuant to the terms of the * * * [SDTP
     Program], ALLEN CAREY (hereinafter "you") agrees to
     release * * * [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. This
     release does not include your nonforfeitable rights to
     your accrued benefits * * * , as of the date of your
     retirement from IBM under the IBM Retirement Plan and
     the IBM Tax Deferred Savings Plan, which are not
                                 - 4 -

     released hereby but survive unaffected by this
     document.

                *    *    *      *       *   *    *

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

                *    *    *      *       *   *    *

          5. In the event of rehire by IBM or any of its
     subsidiaries as a regular employee, you understand that
     IBM reserves the right to require repayment of a
     prorated portion of the SDTP. The amount of repayment
     will be calculated as one week of pay at the rate used
     to calculate the SDTP, multiplied by the difference
     between the number of weeks used to calculate the SDTP
     and the number of weeks away from IBM, less associated
     payroll taxes withheld by IBM.

     Mr. Carey was 55 years of age in June 1993.      For many years,

Mr. Carey had, and in 1993 continued to have, a hearing

impairment for which he wore a hearing aid and was, and in 1993

continued to be, subject to seizures which he controlled through

medication.   IBM was aware of Mr. Carey's health conditions for

more than 20 years prior to his termination.      At the time of

signing the release, Mr. Carey had not filed any claims against

IBM in respect of those conditions or otherwise.

     Petitioners filed their 1993 Federal income tax return and

did not include the lump-sum payment in their taxable income.

They attached Form 8275 (Disclosure Statement) to their return,

describing the lump-sum payment and claiming it was excludable

pursuant to section 104(a)(2).       Petitioners also attached a copy

of the release to their return.
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     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 are narrowly

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

Kovacs v. Commissioner, 100 T.C. 124, 128 (1993), affd. without

published opinion 25 F.3d 1048 (6th Cir. 1994).

     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,

supra at 333-334; Wesson v. United States, 48 F.3d 894, 901-902

(5th Cir. 1995); Bagley v. Commissioner, 105 T.C. 396, 416

(1995), affd. ___ F.3d ___ (8th Cir., Aug. 6, 1997).

     Where damages are received pursuant to a settlement

agreement, the nature of the claim that was the actual basis for
                               - 6 -

settlement controls whether such damages are excludable under

section 104(a)(2).   United States v. Burke, 504 U.S. 229, 237

(1992); Thompson v. Commissioner, 866 F.2d 709, 711 (4th Cir.

1989), affg. 89 T.C. 632 (1987); Robinson v. Commissioner, 102

T.C. 116, 126 (1994), affd. in part and 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).   If the settlement agreement lacks express language

stating what the settlement amount was paid to settle, then the

most important factor is the intent of the payor.     Knuckles v.

Commissioner, 349 F.2d 610, 612 (10th Cir. 1965), affg. T.C.

Memo. 1964-33; Stocks v. Commissioner, supra at 10.

     The first requirement is the existence of a claim "based

upon tort or tort type rights".    Commissioner v. Schleier, supra

at 333.   The claim must be bona fide, but not necessarily valid,

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

Cir. 1994); Robinson v. Commissioner, 102 T.C. at 126; Stocks v.

Commissioner, supra at 10.   Moreover, while it 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.
                              - 7 -

     As we see it, there are three types of injuries to which the

IBM payments to Mr. Carey might be sourced.   First, IBM may have

been motivated to set up the retirement program as a method of

ridding itself of "over-age" employees.   However, this source

does not permit exclusion pursuant to section 104(a) under 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 (1994)).

Commissioner v. Schleier, supra.

     The second motive for payment might have been future claims

for personal injuries, but this source is also precluded from the

exclusion provided by section 104, Roosevelt v. Commissioner, 43

T.C. 77 (1964); Starrels v. Commissioner, 35 T.C. 646 (1961),

affd. 304 F.2d 574 (9th Cir. 1962), as well as the provision of

the release preserving Mr. Carey's right to pursue claims arising

subsequent to the date of the release, see supra p. 4.   Nor does

the possibility of emotional distress arising out of pressure on

Mr. Carey to sign the release provide a basis for applying the

section 104(a) exclusion herein in the absence of any specific,

meaningful allegations by petitioners in this regard.    Sodoma v.

Commissioner, T.C. Memo. 1996-275.

     A third source for the IBM payment might have been Mr.

Carey's prior medical problems and the possible application of

the Americans with Disabilities Act of 1990 (ADA), Pub. L. 101-

336, sec. 2, 104 Stat. 328 (current version at 42 U.S.C. sec.

12101 (1994)); Civil Rights Act of 1991, Pub. L. 102-166, sec.
                               - 8 -

102, 105 Stat. 1072 (current version at 42 U.S.C. sec. 1981a

(1994)).   See Phillips v. Commissioner, T.C. Memo. 1997-336, in

which we elaborated on these provisions including the possible

application to emotional distress arising from termination of

employment.   We think the record herein is far from adequate to

provide a sufficient basis for denying respondent's motion, but

we need not rest our decision on this ground because,

irrespective of any definitive conclusion on this score,

respondent would still be entitled to have the motion granted.

Gajda v. Commissioner, T.C. Memo. 1997-345; Phillips v.

Commissioner, supra.

     Petitioners have the burden of proving the 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's being presumed not to be excludable.    See Taggi

v. United States, supra; Getty v. Commissioner, 91 T.C. 160, 175-

176 (1988), affd. as to this issue and revd. on other issues 913

F.2d 1486 (9th Cir. 1990).

     Mr. Carey did not file a claim with IBM prior to the signing

of the release.   The release in this case is essentially the same

as that in the many other cases involving IBM separation pay

which have come before this Court.     Gajda v. Commissioner, supra;

Lubart v. Commissioner, T.C. Memo. 1997-343; Thorpe v.

Commissioner, T.C. Memo. 1997-342; Phillips v. Commissioner,

supra; Morabito v. Commissioner, T.C. Memo. 1997-315; Sodoma v.
                               - 9 -

Commissioner, supra.2   By its terms, Mr. Carey released IBM from

liability for both contract and tort claims, except those claims

arising after the date of signature.     The release makes no

allocation of the lump-sum payment.     The record herein reflects

no basis for any such allocation.

     Finally, as in the other IBM payment cases, the amount of

Mr. Carey's lump-sum payment was calculated on length of service

and salary.   The release states that if Mr. Carey were rehired by

IBM, he could be required to repay some portion of the lump-sum

payment based on the number of weeks off the IBM payroll compared

with the number of weeks' salary used to calculate the lump-sum

payment.   As in Keel v. Commissioner, T.C. Memo. 1997-278, Sodoma

v. Commissioner, supra, and Webb v. Commissioner, T.C. Memo.

1996-50, the lump-sum payment herein appears to have been

severance pay rather than a payment for personal injury.

Severance pay, just like the pay it replaces, is taxable income.

     We hold that the lump-sum payment is not excludable from

gross income under section 104(a)(2).     Accordingly,

                                       Respondent's motion for

                               summary judgment will be granted

                               and decision will be entered for

                               respondent.



2
   See also Adams v. Commissioner, T.C. Memo. 1997-357; Keel v.
Commissioner, T.C. Memo. 1997-278.
