1997 Tax Ct. Memo LEXIS 408 | Tax Ct. | 1997
1997 Tax Ct. Memo LEXIS 408">*408 An appropriate order and decision will be entered granting respondent's motion for summary judgment.
MEMORANDUM OPINION
PARR,
1997 Tax Ct. Memo LEXIS 408">*409 The issue for decision is whether petitioner may exclude from gross income under section 104(a)(2) amounts received from his employer upon termination of his employment on the ground that such amounts represented damages received on account of personal injury. At the time the petition in this case was filed, petitioners resided in Round Rock, Texas.
A motion for summary judgment is appropriate "if the pleadings, answers to interrogatories, depositions, admissions, and any other acceptable materials, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law." Rule 121(b);
The facts presented below are stated solely for purposes of deciding respondent's motion for summary judgment.
Prior to and during a portion of 1993, petitioner was employed by International Business Machines Corp. (IBM). At the time petitioner ceased his employment with IBM, he was over 40 years old.
At some time during 1993, petitioner became eligible to participate in the IBM Modified and Extended Individual Transition Option Program (ITO II Program). The ITO II Program allows IBM employees to resign or retire early, receiving lump-sum payments and other benefits. Petitioner was required to sign a General Release and Covenant Not to Sue (the release) as a condition for the sums and benefits, including the lump-sum payment pursuant to the ITO II program. 2 The release is broadly written and covers any and all possible and potential claims in contract1997 Tax Ct. Memo LEXIS 408">*411 or in tort arising from employment or termination of employment. 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 * * * [ITO II Program], (Name of Individual) (hereinafter "you") agrees to release * * * [IBM] 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 or the termination of that employment. * * * 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 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. This release does not include your vested rights, if any, in the IBM Retirement Plan, which survive unaffected by this release. * * * * 6. In the event of rehire by IBM or any of its subsidiaries1997 Tax Ct. Memo LEXIS 408">*412 as a regular employee, you understand that IBM reserves the right to require repayment of a prorated portion of the ITO II Program payment. The amount of repayment will be based on the number of weeks off the IBM payroll compared with the number of weeks' salary used to calculate your payment.
At some time during 1993, petitioner signed the release. At the time of signing the release petitioner had no legal claims for unlawful employment practices pending against IBM, nor had he lodged any informal complaints against the company. Petitioner, 1997 Tax Ct. Memo LEXIS 408">*413 however, thought that he was forced by IBM to leave the company and therefore had a claim against IBM for age discrimination and emotional distress.
In exchange for signing the release and participating in the ITO II Program, petitioner received a $ 91,690 lump-sum payment (the payment or ITO payment). The payment was based on years of service and rate of pay.
For the year 1993 petitioner received a Form W-2 from IBM showing wages, tips, and other compensation as $ 228,290. 3 On April 15, 1994, petitioners filed a 1993 joint Federal income tax return. Petitioners reported the $ 228,290 as wages, subtracted the $ 91,690 ITO payment therefrom, and attached a disclosure statement to their return, asserting that the ITO payment is excludable from gross income pursuant to section 104(a)(2) as a payment received in exchange for the release and settlement of tortlike rights. Respondent determined that the ITO payment was fully taxable severance pay.
1997 Tax Ct. Memo LEXIS 408">*414
Except as otherwise provided, gross income includes income from all sources. Sec. 61(a);
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". (c)
Thus, an amount may be excluded from gross income1997 Tax Ct. Memo LEXIS 408">*415 only when it was received both: (1) Through prosecution or settlement of an action based upon tort or tortlike rights; and (2) on account of personal injuries or sickness.
Where damages are received pursuant to a settlement agreement, the nature of the claim that was the actual basis for settlement controls whether such damages are excludable under section 104(a)(2).
Determination of the nature of the claim is factual. 1997 Tax Ct. Memo LEXIS 408">*416
Petitioner asserts that IBM was engaging in systematic discrimination against employees over the age of 40, that he was forced to leave the company because1997 Tax Ct. Memo LEXIS 408">*417 of his age, that as a result he has been diagnosed as having a "major depression" for which he is presently under psychiatric care, and that age discrimination was the primary concern of IBM in requiring petitioner to sign the release. Therefore, petitioner contends that IBM accepted his ITO II Program participation request and subsequent release in lieu of litigation.
Respondent argues, pursuant to
Petitioner, however, has not limited his arguments to claims brought against IBM under the ADEA. Rather, petitioner asserts that he released IBM from liability for "potential tort claims", which would include both a claim for age discrimination under the ADEA and a common law cause of action for emotional distress. To support his position, 1997 Tax Ct. Memo LEXIS 408">*418 petitioner relies on
Viewing the facts in the light most favorable to petitioner, it can be argued that petitioner had a potential tortlike claim for infliction of emotional distress. Thus, we assume, for purposes of this motion only, that petitioners have met the first prong of excludability under section 104(a)(2).
We now turn to the language of the release itself. The release in this case is the same as that in
To prevail under section 104(a)(2), petitioner is not required to have asserted a legal claim against IBM prior to signing the release; however, 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.
Finally, we note that petitioner has not alleged or come forward with any evidence of the specific amounts of the payments allocable to claims of tort or tortlike damages for personal injuries. The release makes no allocation, and petitioner*421 has not set forth any facts upon which he would rely to prove an allocation. Indeed, the fact that the $ 91,690 was based on years of service and rate of pay points in the direction of its having been severance pay rather than a payment for personal injury. See
In sum, viewing the facts in a light most favorable to petitioner, we conclude that respondent has made a prima facie case to support a motion for summary judgment and that petitioner has 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. Accordingly, we hold that respondent's motion for summary judgment will be granted.
To reflect the foregoing,
Footnotes
1. All section references are to the Internal Revenue Code in effect for the taxable year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure, unless otherwise indicated. All dollar amounts are rounded to the nearest dollar, unless otherwise indicated.↩
2. Petitioners' counsel has failed to provide respondent with a copy of the release signed by petitioner. Respondent attached to his memorandum of authorities submitted to this Court a copy of the release used by IBM in the ITO II program. Petitioner did not contest the submission of the release in petitioner's response to respondent's motion for summary judgment. In fact, petitioner refers to the release as if it is the release petitioner signed. Thus we treat it as such.↩
3. On July 2, 1996, petitioners filed an amended return on which they excluded the $ 91,690 from gross income.↩