Gerald Dennis Strong - Page 14




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          petitioner’s objections.  On August 13, 1998, the Bankruptcy                
          Court ruled from the bench that (1) respondent’s claims as to               
          1988 through 1991 were not dischargeable under section                      
          523(a)(1)(C) of the Bankruptcy Code, and (2) respondent’s claim             
          as to 1994 was allowed.  In the course of this bench ruling, the            
          Bankruptcy Court made the following observations:                           
               Turning to the second problem, the objection to the                    
               claim for 1994 tax liabilities, which proof of claim                   
               has been filed by the Internal Revenue Service.                        
                    The claim, of course, enjoys a prima facia                        
               validity under 502 [of the Bankruptcy Code], the debtor                
               [petitioner] then came forward and introduced evidence                 
               which if concluded by the trier of fact to be a                        
               scenario which was proven, would in fact defeat the                    
               claim.  The debtor’s theory is, of course, that these                  
               monies were received not as income which is taxable but                
               as damages under settlement agreement of what the                      
               debtor asserts is a cause of action that would be                      
               included under 26 U.S.C. 104(a)(2).                                    
                    The burden then of establishing the entitlement                   
               falls back to the claim holder.  The facts are that the                
               debtor had a stroke which for some period of time                      
               disabled the debtor and that while he was recuperating,                
               his employer decided to terminate his employment, that                 
               there was a negotiated separation agreement which is in                
               evidence as Government Exhibit 21, a part of which was                 
               a release and waiver of claims in evidence as Debtor’s                 
               Exhibit 1 and pursuant to which, the debtor was paid                   
               certain funds.                                                         
                    The IRS would categorize these funds as, in                       
               effect, severance pay which is a taxable income.  The                  
               debtor would categorize these funds as damages received                
               by agreement on account of personal physical injuries                  
               or physical sickness, excludable from taxable income                   
               under 26 U.S.C. 104(a)(2).                                             
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