Julius R. Phillilps and Marcia G. Phillips - Page 7

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          participant in the ITO II Program was calculated using the same             
          mathematical formula based on years of service.                             
               For the year 1992 petitioner received a Form W-2 from IBM              
          showing wages, tips, and other compensation of $218,329.                    
          Petitioners attached a disclosure statement to their 1992 return,           
          asserting that the $94,174 ITO payment is excludable from gross             
          income pursuant to section 104(a)(2) as a payment received in               
          exchange for the release and settlement of tortlike rights.                 
          Respondent determined that the ITO payment was fully taxable                
          severance pay.                                                              
          Discussion                                                                  
               Except as otherwise provided, gross income includes income             
          from all sources.  Sec. 61(a); Commissioner v. Glenshaw Glass               
          Co., 348 U.S. 426 (1955).  While section 61(a) is to be broadly             
          construed, statutory exclusions from income are narrowly                    
          construed.  Commissioner v. Schleier, 515 U.S. 323, 328 (1995);             
          Kovacs v. Commissioner, 100 T.C. 124, 128 (1993), affd. without             
          published opinion 25 F.3d 1048 (6th Cir. 1994).                             
               Under section 104(a)(2), gross income does not include "the            
          amount of any damages received (whether by suit or agreement and            
          whether as lump sums or as periodic payments) on account of                 
          personal injuries or sickness".  Section 1.104-1(c), Income Tax             
          Regs., provides:                                                            
                    (c) Damages received on account of personal                       
               injuries or sickness.  * * *  The term "damages                        




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