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Petitioners thereafter filed an Amended U.S. Individual
Income Tax Return for the taxable year 1992 (the amended return),
which respondent received on February 23, 1994. On that return,
petitioners claimed that the lump-sum payment was nontaxable.
Petitioners enclosed with the amended return a copy of the
release and an article included in a newsletter entitled the ITO
Newsletter, circulated among IBM employees subject to
restructuring.
The article reads as follows:2
An update to the Private Letter Ruling with the
question "Is the income from the ITO taxable or not?".
Section 104(a) (2) [sic] of the Internal Revenue Code
of 1986 states that , "except as other wise provided,
gross income means all income from whatever source
derived." Accordingly, the Supreme Court has held that
any accession to wealth is presumed to be gross income,
unless the taxpayer can demonstrate that it fits into
one of the specific exclusions created by other
sections of the Code.
Code Sections 104(a) provides in relevant part that
"gross income does not include.....(2) the amount of
any damages received (whether by suit or agreement and
whether as lump sums or periodic payments) on account
of personal injuries or sickness."
Based on this information and the agreement IBM and
ITOers signed the settlement amount should be
nontaxable.
It seems one reader of the ITOers Newsletter
submitted his taxes and included Form # 8275. This
form is the one to use to request the lump sum payment
be declared nontaxable. The reader included the
separation release papers from IBM and guess what? He
got his money back!
You might want to file an update to your taxes.
2 The excerpt as reproduced retains the original spelling and
punctuation.
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