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PSC was a tort claim for personal injuries, the full amount of
the payment is attributable to settlement of that claim, and no
allocation is necessary.
Conversely, respondent asserts that the $58,845 received by
petitioner was paid neither in settlement of a tort type claim
nor on account of personal injuries. Respondent avers that
because the release by its terms waives only claims arising out
of petitioner’s termination, and because her tort claims arise
out of incidents of alleged harassment during the course of her
employment, such claims did not underlie the severance agreement.
Respondent additionally contends that the lack of negotiations,
the use of a general release, and the calculation of payment
based on salary and years of service establish that PSC did not
intend the $58,845 to compensate petitioner for specific personal
injuries. Lastly, it is respondent’s position that even if some
part of the payment were intended to settle petitioner’s personal
injury claims, all proceeds are nonetheless taxable due to the
absence of any basis for allocation between damages for personal
injuries and other, nonexcludable, damages.
We conclude, for the reasons explained below, that
petitioner has failed to establish her entitlement to the
exclusion treatment afforded by section 104(a)(2). The $58,845
payment she received from PSC is therefore subject to taxation
under the general rule of section 61(a).
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Last modified: May 25, 2011