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Amdahl treated the entire amount paid to petitioner as
compensation and issued him a Form W-2, Wage and Tax Statement.
With their 1997 joint Federal income tax return, petitioners
filed a statement explaining their position concerning the
taxability of the amount reported on the Form W-2. Petitioners
argued that the one-time payment was received in exchange for the
release of a variety of different types of claims, including
claims for personal injury, emotional distress, workers’
compensation, ERISA violations, discrimination violations, and
civil rights violations. Petitioners estimated that one-half of
the one-time payment was nontaxable and accordingly did not
include $7,794 of this amount in income. Petitioners did include
in income $35,679 of the severance package, representing the
remainder of the one-time payment and the portion representing
two weeks of compensation.
In the statutory notice of deficiency, respondent determined
that the amount excluded by petitioners as nontaxable, $7,794,
was severance or termination pay and entirely taxable.
Petitioners now argue that the entire amount of the one-time
payment, not merely one-half, should be excluded from income.
Separation or severance pay, like other forms of
compensation for services, is generally includable in the income
of the recipient. See sec. 61(a)(1); sec. 1.61-2(a)(1), Income
Tax Regs.; Brennan v. Commissioner, T.C. Memo. 1997-317.
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Last modified: May 25, 2011