                          T.C. Memo. 1997-315



                        UNITED STATES TAX COURT



         FERDINAND A. & MARLA MORABITO, ET AL.,1 Petitioners v.
              COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 10687-95, 15202-95,        Filed July 9, 1997.
                 15203-95, 15204-95.



     Edward J. Shapiro, for petitioners.

     Patricia A. Riegger, for respondent.



                          MEMORANDUM OPINION

     RAUM, Judge:     The Commissioner determined deficiencies in

petitioners' 1992 Federal income taxes as follows:



     1
       Cases of the following petitioners are consolidated
herewith: William J. Prechtl and Roberta E. Prechtl, docket No.
15202-95; Joseph J. Chiffone, docket No. 15203-95; Douglas R.
Gamble and Joan A. Gamble, docket No. 15204-95.
                                - 2 -


     Petitioners                             Deficiency

     Ferdinand A. and Marla Morabito      $19,462
     Joseph J. Chiffone                    13,982
     Douglas R. and Joan A. Gamble         30,288
     William J. and Roberta E. Prechtl     21,248

This matter is before the Court on Respondent's Motions for

Summary Judgment pursuant to Rule 121.2   In each case,

petitioners submitted in opposition a so-called "Petitioner's

Opposition Motion", which was filed simply as "Petitioner's

Opposition".   The cases were consolidated, and each presents the

same issue.    That is, whether an amount paid to an employee of

IBM upon his severance therefrom conditioned upon his signing of

a release relinquishing all existing claims against IBM is

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

     Petitioners are Ferdinand A. and Marla Morabito, Joseph J.

Chiffone, Douglas R. and Joan A. Gamble, and William J. and

Roberta E. Prechtl.   Petitioners lived in Hicksville, NY,

Holbrook, NY, Locust Valley, NY, and Holtsville, NY,

respectively, when their petitions in these cases were filed.

References to petitioners will be to the male petitioners.

     Prior to and during a portion of 1992, petitioners were

employees of IBM.   In 1992, they each signed a document entitled


     2
        Unless otherwise indicated, all section 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 -


"General Release and Covenant Not to Sue" (the Release).      In

exchange, they received a lump sum from IBM, consisting of 2

weeks' salary for every year of service.    On their 1992 returns,

they each excluded the lump-sum payment from gross income.      They

each attached Form 8275, Disclosure Statement, to their 1992

returns, asserting that the lump-sum amount was excluded because

it was "a payment reeived [sic] in exchange for the release

and/or settlement of tort-type rights, as part of the former

employer's ITO II Program."3

     IBM instituted the ITO II Program as a method of reducing

its workforce.    Employees who participated in the program

resigned or retired from IBM, receiving lump-sum cash payments

and other benefits in exchange for signing the Release.    If an

ITO II participant was subsequently rehired by IBM or any of its

subsidiaries, he was required to repay a prorated portion of the

ITO II payment.

     The Release provides in pertinent part:

     In exchange for the sums and benefits which you will
     receive pursuant to the terms of the Modified and
     Extended Individual Transition Option Program (ITO II
     Program), [individual petitioner] agrees to release
     International Business Machines Corporation
     (hereinafter "IBM") from all claims, demands, actions
     or liabilities you may have against IBM which are
     related to your employment with IBM or the termination
     of that employment. * * * You also agree that this
     release covers, but is not limited to, claims arising

     3
       In docket No. 15204-95, involving petitioners Douglas and
Joan Gamble, "reeived" was correctly shown as "received".
                                     - 4 -


     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 or state law dealing
     with discrimination in employment on the basis of sex,
     race, national origin, religion, disability, or age.
     You also agree that this release includes claims based
     on theories of contract or tort, whether based on
     common law or otherwise. * * *

               *       *       *     *       *    *     *

     You acknowledge and agree that:

     1. The benefits provided pursuant to the ITO II
     Program constitute consideration for this release, in
     that there are benefits to which you would not have
     been entitled had you not signed this release.

                   *       *    *     *       *    *     *

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

None of the petitioners filed a claim of any type against IBM

either prior to signing the Release or at any other time.

     Section 104(a)(2) provides that "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".             Sec. 1.104-1(c),

Income Tax Regs. explains that the term "damages received" "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."

Petitioners' "Oppositions" do not allege, nor does the record

otherwise show, that any petitioner ever made any formal or

informal claim against IBM.         It therefore appears that there were
                                  - 5 -


no settlements for IBM and petitioners to reach.        Petitioners

"waived all claims before asserting them, so this cannot be a

damage settlement by definition."         Taggi v. United States, 835 F.

Supp. 744, 746 (S.D.N.Y. 1993), affd. 35 F.3d 93 (2d Cir. 1994).

     However, even if we assume that the signed Releases

represent settlement agreements, for the awards to be excludable

under section 104(a)(2), petitioners must demonstrate (1) "that

the underlying cause of action giving rise to the recovery is

'based upon tort or tort type rights'" and (2) "that the damages

were received 'on account of personal injuries or sickness.'"

Commissioner v. Schleier, 515 U.S. 323, 337 (1995).

1.   Underlying cause of action

     The nature of the claim controls whether a damage amount is

excludable from gross income.      Stocks v. Commissioner, 98 T.C. 1,

10 (1992).   Determining the nature of the claim is a factual

matter.   Sodoma v. Commissioner, T.C. Memo. 1996-275.       If there

is no express language in the agreement explaining why the

settlement amount is being paid, the most important factor is

"the intent of the payor".   Stocks v. Commissioner, supra.

     The best indicator of the intent of the payor in this case

is the language of the Release.     The Release freed IBM from "all

claims, demands, actions or liabilities you may have against IBM

which are related to your employment with IBM or the termination

of that employment."   The Release covered ADEA claims, employment
                                - 6 -


discrimination claims, and "claims based on theories of contract

or tort."   The Release also provided that the benefits received

for signing "constitute consideration for this release, in that

there are benefits to which you would not have been entitled had

you not signed this release."    This language indicates that IBM

considered the payments to petitioners as compensation for

release of all potential claims, including, but not limited to,

tort claims.    This is supported by IBM's inclusion of each award

in petitioners' W-2 forms.    There is nothing in the Release to

show that it was tailored to a specific incident or named

individual.    The Release is so broad it covers any potential

existing claim; it is not designed to compensate for a specific

tort violation except incidentally.

2.   Damages received

     Petitioners must also demonstrate that "the damages were

received 'on account of personal injuries or sickness.'"

Commissioner v. Schleier, supra at 337 (quoting sec. 104(a)(2)).

Where a settlement agreement contains a number of claims, does

not allocate the portion excludable under section 104(a)(2), and

there is no other evidence that a specific claim was meant to be

singled out, the court must consider the entire amount taxable.

Taggi v. United States, supra at 746;    Sodoma v. Commissioner,

T.C. Memo. 1996-275.    Cf. Stocks v. Commissioner, supra at 17.

In this case, there was no division of the award by the parties.
                                - 7 -


Petitioners have presented no evidence that a portion of the

award was intended to be excluded.      Therefore, the entire amount

must be included in gross income.

     Petitioners contend that they were singled out by IBM

because they could have filed age/job discrimination claims.

They contend that IBM purposely intimidated and harassed them in

order to reduce its work force; ultimately they were told to take

the buy-out or risk losing their jobs.     They allege that they

were then forced to sign the Release before they were paid.      The

ITO II Program paid 2 weeks per year of service versus 1 week per

year under IBM's existing ITO reduction in force program.

Petitioners claim that the additional week represented payment

for personal injury.

     While petitioners may or may not have had actionable claims

against IBM, at issue here is the excludability of the ITO II

payments.   When petitioners signed the Releases, they had not

brought suits against IBM.   There is no evidence that they even

talked to IBM about doing so.   Regardless of whether any of them

may have had a bona fide grievance against IBM, each accepted

IBM's offer, which IBM sweetened by adding an extra week's pay to

the formula for computing the amount payable.     And although

petitioners may have thought they were settling claims, they

presented no evidence that IBM shared that belief.     The ITO II

payments more fully resemble severance pay than settlements.
                                 - 8 -


This conclusion is supported by the Release itself, which was not

tailored specifically for petitioners, but was used generally for

the ITO II Program.   See Keel v. Commissioner, T.C. Memo. 1997-

278; Webb v. Commissioner, T.C. Memo. 1996-50.       It is also

supported by the amounts paid, which were based on years of

service rather than specific injury.

     Petitioners also argue that IBM's actions caused personal

injuries to petitioners after they signed the Release.       This

argument does not help petitioners, since the Release covered

only existing claims against IBM.    Petitioner "agrees to release

[IBM] from all claims * * * you may have against IBM which are

related to your employment with IBM".       (Emphasis added.)   See id.

     Petitioners have failed to demonstrate that a material issue

of fact remains for trial.    They have not shown that the amounts

received under the ITO II program were paid in settlement of tort

claims, or that any portion was "received 'on account of personal

injuries or sickness.'"     Commissioner v. Schleier, supra at 337

(quoting sec. 104(a)(2)).

                                              Respondent's motions for

                                         summary judgment will be

                                         granted, and decisions will be

                                         entered for respondent.
