Stephen William Dahlgreen - Page 9

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          received from CMS during 1990 was not taxable because the $20,000           
          represented payment for:                                                    
               [P]ersonal injuries sustained as a result of the                       
               tortious conduct of * * * CMS * * * who knowingly                      
               [made] false statements in writing to a U.S. Government                
               official for the purpose of obtaining U.S. Government                  
               agency * * * [GNMA] approval of the purchase of a loan                 
               servicing portfolio by CMS.                                            
          The Notice of Deficiency                                                    
               In the notice of deficiency, respondent increased                      
          petitioner's taxable income by $20,000, characterizing the                  
          payment as "separation pay" and explaining:                                 
               It is determined * * * that the employment contract                    
               separation pay of $20,000 which was included in your                   
               Form W-2 from * * * [CMS] was not reported on your tax                 
               return. Accordingly, taxable income is increased                       
               $20,000 for 1990.                                                      
          Controlling Legal Principles                                                
               Separation or severance pay, like other forms of                       
          compensation for services, is generally includable in the income            
          of the recipient.  Sec. 61(a)(1); Brennan v. Commissioner, T.C.             
          Memo. 1997-317; sec. 1.61-2(a)(1), Income Tax Regs.  In general,            
          section 104(a)(2) excludes from gross income "the amount of any             
          damages received * * * on account of personal injuries".  Only              
          damages that are received:  (1) In connection with a claim based            
          upon a tort, or tort type right; and (2) on account of personal             
          injury or sickness, are excludable from the recipient's income.             
          Sec. 104(a)(2); Commissioner v. Schleier, 515 U.S. 323, 337                 
          (1995).                                                                     




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