James A. Picard - Page 20

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          disability is formally designated as "service" under the                    
          applicable workmen's compensation statute.  As was the case in              
          Wiedmaier v. Commissioner, T.C. Memo. 1984-540, and Mabry v.                
          Commissioner, supra, the recomputation of petitioner's disability           
          retirement payments was a direct function of his date of hire.              
          We believe this feature is sufficiently connected to the concept            
          of "length of service" to bring the recomputed payments within              
          the proscription of section 1.104-1(b), Income Tax Regs., for               
          pensions "determined by reference to * * * length of service".              
          This interpretation is reinforced by the fact that the purpose of           
          the recomputation was to make petitioner's disability payments              
          approximate the pension payments provided to other employees                
          based on years of actual service.  "Section 1.104-1(b), Income              
          Tax Regs., acts to prevent pension payments that are disguised as           
          disability payments from being excluded under section 104(a)(1)."           
          Wiedmaier v. Commissioner, supra.  Our conclusion is consistent             
          with the Court's prior holdings in Mabry and Wiedmaier.  This               
          result also comports with the general rule that "Exemptions as              
          well as deductions are matters of legislative grace, and a                  
          taxpayer seeking either must show that he comes squarely within             
          the terms of the law conferring the benefit sought."  Newhall               
          Unitrust v. Commissioner, 104 T.C. 236, 247 (1995) (quoting                 
          Nelson v. Commissioner, 30 T.C. 1151, 1154 (1958)).  Accordingly,           
          the payments to petitioner during the year at issue were                    

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