DocketNumber: No. 24846-97
Citation Numbers: 2000 T.C. Memo. 98, 79 T.C.M. 1619, 2000 Tax Ct. Memo LEXIS 112, 24 Employee Benefits Cas. (BNA) 2629
Judges: "Nims, Arthur L."
Filed Date: 3/22/2000
Status: Non-Precedential
Modified Date: 11/21/2020
2000 Tax Ct. Memo LEXIS 112">*112 Decision will be entered under Rule 155.
In connection with a corporate reorganization and
consequent termination of her employment, P participated in an
enhanced severance program offered to eligible employees. Under
this program, P received a lump-sum payment, calculated based
upon rate of pay and years of service, in return for signing a
general release of all claims against her employer. An identical
payment formula was applied and release document signed in the
case of each participating employee. P excluded this payment
from income, and R determined a deficiency for taxes
attributable thereto. P contends that the payment was received
in settlement of and to compensate for emotional distress she
suffered as a result of sexual harassment in the workplace and,
therefore, is excluded from income pursuant to
I.R.C.
HELD: The payment received by P is not excludable from
income under
account of personal injuries or sickness.
MEMORANDUM OPINION
NIMS, JUDGE: Respondent determined a Federal income tax deficiency for petitioner's 1994 taxable year in the amount of $ 13,816. Respondent also determined an accuracy-related penalty of $ 2,765 for 1994, pursuant to section 6662(a). After concessions, the sole issue for decision is whether a $ 58,845 payment received by petitioner from her employer, in connection with the termination of her employment, is excluded from income under
Unless otherwise indicated, all section references are to sections of 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.
This case was submitted fully stipulated pursuant to Rule 122. The stipulations of the parties, with accompanying exhibits, are incorporated herein by this reference.
BACKGROUND
Marsha M. Bland resided in Las Vegas, Nevada, at the time of filing her petition in this case. Prior to and during the year in issue, petitioner resided in Oklahoma and, from July 17, 1970, to August 1, 1994, was2000 Tax Ct. Memo LEXIS 112">*114 employed by Public Service Company of Oklahoma (PSC).
In late 1986 or early 1987, petitioner was transferred within the PSC organization from an administrative position to a field personnel position. She alleges that shortly thereafter she began to experience instances of sexual discrimination and harassment. Petitioner characterizes her work environment as tainted by inappropriate and unprofessional negative comments, by offensive and harassing jokes, by disruptive behavior on the part of male workers and supervisors (throwing plastic cups at petitioner during a lecture she was attempting to present), and by greater restrictions on her ability to "call out" additional workers when needed for a job. We note, however, that because this testimony was presented only in the form of a written stipulation as to what petitioner would say if called as a witness, the Court was deprived of any opportunity to assess credibility. We therefore summarize petitioner's averments without making a determination regarding their veracity but for purposes of showing her position.
Prior to 1994, petitioner made complaints to PSC's Equal Employment Opportunity Consultant and Director of Human Resources2000 Tax Ct. Memo LEXIS 112">*115 regarding incidents of harassment by her male coworkers. She also sent a letter to her supervisor, in response to an unfavorable performance review, which included the following language:
Your memo asks for action plans on meeting your expectations, I
don't feel this is possible. Whatever your reasons are, as you
have stated your [sic] not sure a woman could ever do this job
as well as a man. * * * This entire process has been an ongoing
harrassment [sic] without constructive consequences. I want to
know what alternatives if any are open to me. I feel that for
the past twenty years that [I] have done a good job wherever I
have worked. I like my job I have now, but do not feel this
continued and unjustified intimidation can or should be
tolerated. * * *
Petitioner further asserts that she told the Equal Employment Opportunity Consultant that she was going to bring a lawsuit against the company, but she did not at any time file suit against PSC on the basis of gender discrimination or other claims.
Petitioner additionally suffered physical problems during the period she was employed as a field2000 Tax Ct. Memo LEXIS 112">*116 supervisor. She was hospitalized three times, for chest pain, pneumonia, and abdominal pain, respectively, and she experienced continuing difficulty with breathing and asthma. Petitioner attributes these ailments to work- related stress and maintains that the problems ceased after she left PSC.
In 1994, as part of a corporate reorganization in which unnecessary positions were eliminated, eligible PSC employees were offered an opportunity to participate in an Enhanced Severance Plan. Employees electing to so participate received a lump-sum payment representing 2-1/2 weeks of pay per year of service, in exchange for signing the Enhanced Severance Plan Full Waiver and Release of Claims. Employees choosing not to sign the waiver received an Involuntary Termination Benefit.
Petitioner, as an eligible employee, signed the Enhanced Severance Plan Full Waiver and Release of Claims on June 16, 1994. The terms of this waiver are set forth in relevant part below:
Enhanced Severance Plan
Full Waiver and Release of Claims
In exchange for the benefits of the Central and South West
Corporation's Enhanced Severance2000 Tax Ct. Memo LEXIS 112">*117 Plan, I hereby waive and
release any and all claims that I may have against Central and
South West Corporation, Public Service Company of Oklahoma,
Central Power & Light Company, West Texas Utilities Company,
Southwestern Electric Power Company, Transok, Inc., CSW Energy,
Inc., and CSW Development I, or any of their respective
officers, owners, directors, employees, agents, insurers,
subsidiaries, and assigns (hereinafter collectively referred to
as the "Company") in any way arising out of the termination of
my employment with the Company. This Release includes, without
limitation, any claim arising under the Age Discrimination in
Employment Act of 1967, the Civil Rights Acts of 1964 and 1991,
the Labor Management Relations Act, the Americans with
Disabilities Act, any applicable state civil rights act, any
other federal or state statute or local ordinance, or any common
law cause of action including, without limitation, claims for
breach of contract, wrongful discharge, personal injury or any
claim for attorneys' fees.
I agree not to bring2000 Tax Ct. Memo LEXIS 112">*118 any lawsuit or proceeding against the
Company for any matter in any way arising out of the termination
of my employment. I understand that this Release precludes me
from recovering any relief as a result of any charge, lawsuit,
or proceeding brought by me or on my behalf in any way arising
out of the termination of my employment.
No negotiations preceded petitioner's signing of the release, and she thereafter received a payment of $ 58,947 from PSC. This amount reflected 2-1/2 weeks of petitioner's pay times her years of service, for a gross sum of $ 63,097, less taxes withheld. PSC reported the payment as Form W-2, Wage and Tax Statement, income. On her 1994 Federal income tax return, petitioner excluded $ 58,845 from gross income, with the discrepancy presumably resulting from a computational error. Because respondent's subsequent notice of deficiency was based upon the $ 58,845 figure, the parties are referring to and treating the payment as a $ 58,845 payment, and we do likewise for purposes of our discussion.
DISCUSSION
We must decide whether the $ 58,845 received by petitioner in conjunction with her termination from PSC is excluded2000 Tax Ct. Memo LEXIS 112">*119 from income as compensation for injuries or sickness pursuant to
As a general rule, the Internal Revenue Code imposes a Federal tax on the taxable income of every individual. See
(a) In General. -- Except in the case of amounts
attributable to (and not in excess of) deductions allowed under
section 213 (relating to medical, etc., expenses) for any prior
taxable year, gross income does not include --
* * * * * * *
(2) the amount of any2000 Tax Ct. Memo LEXIS 112">*120 damages received (whether by
suit or agreement and whether as lump sums or as periodic
payments) on account of personal injuries or sickness;
(
Regulations promulgated under
For purposes of applying the above statutory and regulatory text, the U.S. Supreme Court in
Petitioner contends that the payment she received from PSC satisfies both prerequisites for excludability under
Conversely, respondent asserts that the $ 58,845 received by petitioner was paid neither in settlement of a tort2000 Tax Ct. Memo LEXIS 112">*122 type claim nor on account of personal injuries. Respondent avers that because the release by its terms waives only claims arising out of petitioner's termination, and because her tort claims arise out of incidents of alleged harassment during the course of her employment, such claims did not underlie the severance agreement. Respondent additionally contends that the lack of negotiations, the use of a general release, and the calculation of payment based on salary and years of service establish that PSC did not intend the $ 58,845 to compensate petitioner for specific personal injuries. Lastly, it is respondent's position that even if some part of the payment were intended to settle petitioner's personal injury claims, all proceeds are nonetheless taxable due to the absence of any basis for allocation between damages for personal injuries and other, nonexcludable, damages.
We conclude, for the reasons explained below, that petitioner has failed to establish her entitlement to the exclusion treatment afforded by
A. TORT OR TORT TYPE2000 Tax Ct. Memo LEXIS 112">*123 RIGHTS
As indicated above, the first requirement for the
State law typically determines the nature of the legal interests involved. See
Here, intentional infliction of emotional distress, which petitioner contends she suffered while employed by PSC, is recognized as a tort under Oklahoma law. See
As used in
However, because exclusion under
Determining the intent of the payor is a factual inquiry, and the terms of the agreement as well as the setting in which it was reached and carried out are relevant in this endeavor. See
As regards the agreement itself, the waiver and release document signed by petitioner explicitly covers "any and all claims". It then sets forth a nonexclusive enumeration of claims within its reach which includes both tort and nontort causes of action. The terms of the release thus indicate that the intent of PSC was to settle all possible claims, not exclusively to compensate petitioner for emotional distress. The fact that the document is a standard, general release with no specific mention of petitioner's individual harms is also supportive of such a view.
Furthermore, as noted by respondent, the release expressly waives only claims "arising out of the termination" of employment, thereby providing some basis for an argument that PSC did not intend to settle claims arising out of the course of employment, such as emotional distress experienced while working. However, since petitioner's2000 Tax Ct. Memo LEXIS 112">*128 termination can potentially be viewed as a culmination or outgrowth of the purported discrimination and consequent negative performance reviews, we decline to base our resolution of this matter on a restrictive interpretation of the above-quoted phrase.
The designation of the program under which the release was signed as the "Enhanced Severance Plan" is likewise indicative of intent. The inference from this choice of terminology is that PSC management viewed as severance pay that which was received by petitioner in exchange for signing the waiver. Severance pay, in turn, has been defined by this Court as "an allowance usually based on length of service that is payable to an employee on termination of employment."
With respect to setting, the surrounding circumstances in this case also tend to weigh against characterizing petitioner's payment as compensation for personal injuries and in favor of2000 Tax Ct. Memo LEXIS 112">*129 seeing the funds as severance pay. The parties engaged in no meetings or negotiations concerning petitioner's participation in the Enhanced Severance Plan. Petitioner was likewise afforded no individualized treatment in terms of either the agreement signed or the payment received. Other employees who chose to participate in the Enhanced Severance Plan signed identical releases and received payments computed under the same mathematical formula. Petitioner's award reflects no increase in amount that could reveal an intent to recompense injuries that she alone suffered. Furthermore, although petitioner argues that her full payment was intended to settle her personal injury claim, we find that the implications of such a position render it insupportable. We cannot conclude that PSC gave other terminated employees severance pay but refused such a benefit to petitioner, and that she succeeded in getting anything at all only because of her harassment complaints.
A final indicator of PSC's intent in making the payment is the company's own characterization of the sum. PSC reported as Form W-2 income and withheld taxes from the $ 63,097 gross amount paid to petitioner under the Enhanced Severance2000 Tax Ct. Memo LEXIS 112">*130 Plan. PSC also labeled the $ 63,097 figure as "SEV PAY" on the company's December 17, 1994, Payroll and Deduction Register.
Given these facts, we find petitioner's situation analogous to previous cases involving lump-sum payments offered upon termination in return for signing a general release, and we conclude that a like result denying exclusion treatment is warranted. See
Petitioner correctly observes that in a number of the mass termination and general release cases, the employee had never asserted, and the employer was not aware of, any work-related personal injury claims. See, e.g.,
Two recent decisions regarding payments received pursuant to a downsizing by International Business Machines Corporation (IBM) illustrate this point. In
We assumed in
In
Faced with the above-described facts, the Court, while acknowledging that "It is apparent to us that IBM viewed petitioner as litigious", nonetheless concluded "IBM did not intend for any portion of the $ 207,000 to be specifically carved out as a settlement of a tort or tort type claim on account of a personal injury or sickness." Id. In reaching this conclusion, the Court again gave primary emphasis to the all-encompassing nature of the release:
The agreement's broad language indicates that IBM considered the
$ 207,000 payment as a quid pro quo for petitioner's release of
all potential2000 Tax Ct. Memo LEXIS 112">*134 claims against IBM, including, but not limited to,
tort claims. IBM did not make an identifiable portion of the
payment in settlement of petitioner's personal injury claim. The
payment was for severance pay as well as for petitioner's
release of potential tort and nontort claims against IBM. [Id.]
As in
Given these authorities and the evidence before us, we see no grounds upon which to distinguish petitioner's circumstances. As explained above, we cannot accept petitioner's argument that the full amount of her payment was intended to compensate for personal injuries, and we are satisfied that it is in the main properly characterized as taxable severance pay. Therefore, since the record is devoid of any information that would support allocation of a specific sum to personal injury damages, the entire payment is taxable. See
We hold that the $ 58,845 received by petitioner is not excluded from income under
To reflect the foregoing,
Decision will be entered under Rule 155.
Commissioner v. Schleier , 115 S. Ct. 2159 ( 1995 )
Mason K. Knuckles and Bernice A. Knuckles v. Commissioner ... , 349 F.2d 610 ( 1965 )
Hughes A. Bagley and Marilyn B. Bagley v. Commissioner of ... , 121 F.3d 393 ( 1997 )
Albert J. Taggi & Ann D. Taggi v. United States , 35 F.3d 93 ( 1994 )
Lubart v. Commissioner , 154 F.3d 539 ( 1998 )
Joseph J. Gajda and Lillian A. Gajda v. Commissioner of ... , 158 F.3d 802 ( 1998 )
Eddy v. Brown , 1986 Okla. LEXIS 106 ( 1986 )
United States v. Burke , 112 S. Ct. 1867 ( 1992 )