1997 Tax Ct. Memo LEXIS 646 | Tax Ct. | 1997
1997 Tax Ct. Memo LEXIS 646">*646 Decision will be entered for respondent.
HELD: P failed to prove that any portion of a payment he received from his former employer after being laid off constitutes damages excludable under
MEMORANDUM OPINION
HALPERN, JUDGE: Respondent1997 Tax Ct. Memo LEXIS 646">*647 determined a deficiency of $30,993 in petitioner's 1993 Federal income tax. The only issue to be decided is whether petitioner may exclude from gross income any portion of a payment received pursuant to a settlement agreement in 1993.
Unless otherwise noted, all section references are to the Internal Revenue Code in effect for 1993, and all Rule references are to the Tax Court Rules of Practice and Procedure.
Some facts have been stipulated and are so found. The stipulation of facts, with accompanying exhibits, is incorporated herein by this reference. We need find few facts in addition to those stipulated and, accordingly, will not separately set forth those findings. We will include additional findings of fact in the discussion that follows. Petitioner bears the burden of proof on all questions of facts. Rule 142(a).
BACKGROUND
At the time the petition was filed, petitioner resided in Monroe, New York.
Petitioner was born in 1946 and reached the age of 47 in 1993.
Petitioner was employed as an attorney with Boehringer Ingelheim Pharmaceutical, Inc. (Boehringer), from October 1, 1979, through May 11, 1992.
By letter dated March 9, 1992, from Boehringer the March 9 letter), petitioner1997 Tax Ct. Memo LEXIS 646">*648 was notified that, effective May 4, 1992, he would be permanently laid off as part of a restructuring within the company (the restructuring). Petitioner was one of a number of Boehringer employees laid off on account of the restructuring (the laid off employees). The laid off employees were offered a package of benefits. Among those benefits was a payment entitled "special severance payment". The amount of the special severance payment offered to a particular laid off employee was determined pursuant to a generally applicable schedule that took into account years of service and base salary. The amount of the special severance payment offered to petitioner was $112,542.21. Petitioner was given until April 30, 1992, to accept that special severance payment by signing an agreement entitled "separation agreement" (the separation agreement). Petitioner did not sign the separation agreement and, as a result, did not receive the special severance payment offered to him. Petitioner retained a lawyer who wrote to Boehringer on April 23, 1992 (the April 23 letter), stating that Boehringer's termination of petitioner's employment violated the "Age Discrimination in Employment Act ('ADEA'), 1997 Tax Ct. Memo LEXIS 646">*649
Subsequent to the June 12 letter, petitioner and Boehringer entered into an agreement entitled "Settlement and General Release Agreement" (the final agreement). 1997 Tax Ct. Memo LEXIS 646">*650 The final agreement contains numerous recitals, including the following: (1) that petitioner's employment relationship with Boehringer had been terminated, (2) that petitioner "has made certain claims for damages against * * * Boehringer, including those set forth in * * * the April 23 letter", (3) that petitioner alleges "that the termination of the employment relationship was unjust and discriminatory", and (4) that Boehringer denies those allegations and asserts that it was legally entitled to terminate its employment relationship with petitioner. In consideration of the terms, covenants, and conditions of the final agreement, petitioner and Boehringer agree as follows, among other things:
1. In full settlement of all of Releasor's petitioner's claims related to the employment relationship and the termination of the employment relationship, Company Boehringer shall pay to Releasor no earlier than January 15, 1993 and no later than January 30, 1993, the sum of * * * $115,500.00. Company may withhold from said payment Federal Insurance Contributions Act tax, federal and state taxes.
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2. * * * Releasor has not filed any complaints, claims, or actions against Company1997 Tax Ct. Memo LEXIS 646">*651 * * * with any state, federal, or local agency or court and * * * will not do so
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6. Releasor hereby fully RELEASES, DISCHARGES and WAIVES any and all claims, counts, causes of action and demands of every kind and nature, whether or not now known to Releasor, arising out of Releasor and Company's employment relationship or the termination of the employment relationship, which Releasor has, or under any circumstances could or might have, against Company, including its parent corporation, subsidiaries * * *
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7. Releasor understands that this Agreement and the release of claims contained herein covers all claims relating to the employment relationship or the termination of the employment relationship resulting from any act or omission by or on the part of Company committed or omitted prior to the execution of this Agreement, including but not limited to, any and all claims under Title VII of the Civil Rights Act of 1964,
8. It is acknowledged that Releasor may hereafter discover claims or facts in addition to or different from those which Releasor now knows or believes to exist with respect to the subject matter of this Agreement and which, if known or suspected at the time of executing this Agreement, may have materially affected this settlement. Releasor, nevertheless, hereby waives any right, claim or cause of action that might arise as a result of such different or additional claims or facts. * * *
9. * * * The purpose of this Agreement is to provide for an amicable settlement1997 Tax Ct. Memo LEXIS 646">*653 of any and all claims Releasor may have relative to the employment relationship or the termination of the employment relationship.
Numbered paragraphs 6 through 9 of the final agreement are substantially identical to provisions of the separation agreement, which petitioner had refused to sign.
Pursuant to the final agreement, petitioner received $115,500 from Boehringer in January 1993 (the payment). Boehringer withheld taxes (including Federal income tax) from the payment and issued to petitioner a Form W-2, which indicates that information relating to the payment was being furnished to the Internal Revenue Service.
Petitioner did not include the payment as an item of gross income in his 1993 Federal income tax return. Respondent determined a deficiency in tax on the basis that petitioner had omitted the payment as an item of gross income (described as "wages") of $115,500. Petitioner timely petitioned this Court, assigning error to respondent's determination of a deficiency and averring in support of that assignment that the payment had been received in settlement of claims for defamation, fraud, misrepresentation, emotional distress, and age discrimination related to1997 Tax Ct. Memo LEXIS 646">*654 petitioner's wrongful discharge from the employ of Boehringer. In the petition, petitioner concedes that any portion of the payment received in settlement of his claim of age discrimination is an item of gross income and that respondent did not err in adjusting his income accordingly. Petitioner describes the issue for decision as one of "apportionment", apportioning the payment between "personal tortious injury" and the age discrimination claim. Respondent denies both petitioner's assignment of error and the facts averred in support thereof.
DISCUSSION
Gross income means all income from whatever source derived, unless excluded by law.
Respondent argues that the payment is an item of taxable compensation for services, viz, severance pay. Petitioner does not disagree that, if the payment is compensation for services, it is taxable compensation for services. Rather, petitioner argues that the payment is not compensation for services but is damages received in settlement of various claims. Petitioner requests that this Court apportion the payment between damages received on account of his claim of age discrimination (which petitioner concedes is an item of gross income; see
When petitioner was laid off by Boehringer, he, like other laid off employees, was offered a package of benefits that included a special severance payment. To obtain a special severance payment, petitioner had to sign the separation agreement, which he did not do. Instead, petitioner entered into negotiations with Boehringer concerning his rights "under the ADEA and any other theories that are meritorious". Apparently, Boehringer did not think much of petitioner's claims, but did offer to increase what it described as "the original severance offer" by $2,500. Petitioner and Boehringer ultimately entered into the final agreement and, pursuant thereto, petitioner received the payment.
Upon consideration of all the facts and circumstances, we believe and so find that Boehringer simply extended the period during which petitioner could accept its original offer of a special severance payment, sweetening it a bit, and, eventually, petitioner accepted the sweetened offer. That finding1997 Tax Ct. Memo LEXIS 646">*657 is supported by the terms of the final agreement, which, in relevant part, is substantially the same as the separation agreement. The testimony of Cassandra Nikituk, director of human resources for Boehringer and one familiar with personnel matters in connection with the restructuring, also supports that finding. Ms. Nikituk was the Boehringer official responsible for determining the amount of the special severance payment that would be offered to each laid off employee and for authorizing payment of that amount. She testified that the payment to petitioner was not the only case in which an offer of a special severance payment to a laid off employee was extended. Although Ms. Nikituk was not directly involved in the negotiations with petitioner, she testified that, at one point, she was asked by a Boehringer attorney to approve (and she did approve) an additional $2,500 as "a severance amount to settle this case amicably". Lastly, Ms. Nikituk testified that it "was always * * * her understanding" that the payment to petitioner constituted severance pay.
In
The remaining portion of the payment, $2,957.79 (the additional payment) is not separately dealt with in the final agreement, and, therefore, we must look outside of the final agreement to determine its character. Cf.
In conclusion, petitioner has failed to prove that any of the payment constitutes
Decision will be entered for respondent.