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a result of any charge, lawsuit, or proceeding brought
by me or on my behalf in any way arising out of the
termination of my employment.
No negotiations preceded petitioner’s signing of the
release, and she thereafter received a payment of $58,947 from
PSC. This amount reflected 2-1/2 weeks of petitioner’s pay times
her years of service, for a gross sum of $63,097, less taxes
withheld. PSC reported the payment as Form W-2, Wage and Tax
Statement, income. On her 1994 Federal income tax return,
petitioner excluded $58,845 from gross income, with the
discrepancy presumably resulting from a computational error.
Because respondent’s subsequent notice of deficiency was based
upon the $58,845 figure, the parties are referring to and
treating the payment as a $58,845 payment, and we do likewise for
purposes of our discussion.
Discussion
We must decide whether the $58,845 received by petitioner in
conjunction with her termination from PSC is excluded from income
as compensation for injuries or sickness pursuant to section 104.
I. General Rules
As a general rule, the Internal Revenue Code imposes a
Federal tax on the taxable income of every individual. See sec.
1. Section 61(a) specifies that “Except as otherwise provided”,
gross income for purposes of calculating such taxable income
means “all income from whatever source derived”. Compensation
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