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In a situation such as presented here, where payment to a
former employee has been made pursuant to some agreement, the
nature of the claim that led to the agreement and payment must be
examined in order to determine whether the provisions of section
104(a)(2) apply. United States v. Burke, 504 U.S. 229, 237
(1992).
Dispute Between the Parties
There is no disagreement between the parties with respect to
the above-stated general principles of Federal income taxation.
The dispute between the parties focuses upon the nature of the
claim, if any, that petitioner had against CMS, and the
characterization of the $20,000 payment petitioner received from
CMS in 1990.
Respondent argues that the $20,000 payment constitutes
severance pay petitioner received in satisfaction of any future
commissions he might have been entitled to receive, and
consequently must be included as such in petitioner's income.
Petitioner maintains that he had a tort claim (intentional
infliction of mental distress) against CMS, and argues that the
payment represents the settlement of that tort claim. Therefore,
according to petitioner, the payment is of the type that is
excludable from income under section 104(a)(2), and his 1990
Federal income tax return reflects his correct Federal income tax
liability for that year.
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