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package was for severance compensation and petitioner’s agreement
not to accept employment with a competitor of Millipore, and 54.4
percent was on account of petitioner’s personal injuries or sickness
arising from his firing.4 Our reasoning for this allocation is as
follows.
When petitioner’s employment with Millipore was terminated on
September 22, 1992, petitioner’s annual salary was approximately
$228,000. Thus, the 18 months’ severance portion of Millipore’s
offer was approximately $342,000. Reducing the overall $750,000
settlement package by $342,000 leaves $408,000, or 54.4 percent, for
the personal injury portion of the settlement package.
On the basis of this 54.4-percent allocation, we conclude that
$326,400 of the $600,000 petitioner received in 1992 was paid on
account of personal injuries or sickness and is excludable from
petitioners’ gross income pursuant to section 104(a)(2), and the
balance of $273,600 is taxable.
4 As stated, petitioner’s claims against Millipore did
not sound solely in tort; petitioner’s claims were for breach of
the employment contract as well. Millipore initially offered
petitioner a severance package including 18 months’ salary. We
infer that the settlement petitioner accepted in lieu of that
offer incorporated the element of severance pay, though not
designated as such in the agreement.
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