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"General Release and Covenant Not to Sue" (the Release). In
exchange, they received a lump sum from IBM, consisting of 2
weeks' salary for every year of service. On their 1992 returns,
they each excluded the lump-sum payment from gross income. They
each attached Form 8275, Disclosure Statement, to their 1992
returns, asserting that the lump-sum amount was excluded because
it was "a payment reeived [sic] in exchange for the release
and/or settlement of tort-type rights, as part of the former
employer's ITO II Program."3
IBM instituted the ITO II Program as a method of reducing
its workforce. Employees who participated in the program
resigned or retired from IBM, receiving lump-sum cash payments
and other benefits in exchange for signing the Release. If an
ITO II participant was subsequently rehired by IBM or any of its
subsidiaries, he was required to repay a prorated portion of the
ITO II payment.
The Release provides in pertinent part:
In exchange for the sums and benefits which you will
receive pursuant to the terms of the Modified and
Extended Individual Transition Option Program (ITO II
Program), [individual petitioner] agrees to release
International Business Machines Corporation
(hereinafter "IBM") from all claims, demands, actions
or liabilities you may have against IBM 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
3 In docket No. 15204-95, involving petitioners Douglas and
Joan Gamble, "reeived" was correctly shown as "received".
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