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For the reasons described below, we believe that section
6331(e) is properly construed to include petitioner’s severance
pay within the meaning of “salary or wages”.
First, severance pay is itself a form of compensation. It
is paid by the taxpayer’s employer as compensation for
termination of the employer-employee relationship. In re W.T.
Grant Co., 620 F.2d 319, 321 (2d Cir. 1980); Straus-Duparquet,
Inc. v. Local Union No. 3, IBEW, 386 F.2d 649, 651 (2d Cir.
1967). In fact, on occasion this Court has characterized
severance pay as a replacement or substitute for salary or wages.
See, e.g., Collins v. Commissioner, T.C. Memo. 2002-115; Gross v.
Commissioner, T.C. Memo. 2000-342.
Second, severance pay is computed generally by reference to
the employee’s base salary and the employee’s length of service
or tenure. See Webster’s Tenth Collegiate Dictionary 1073 (1997)
(defining severance pay as “an allowance usually based on length
of service that is payable to an employee on termination of
13(...continued)
of the lapse of time.” S. Rept. 94-938, supra at 389, 1976-3
C.B. (Vol. 3) at 427; see H. Rept. 94-658, at 306 (1975), 1976-3
C.B. (Vol. 2) 695, 998. “The underlying purpose of the provision
[section 6331(e)] is to provide a means of levying upon
remuneration payable to a taxpayer on a recurring basis for
personal services performed for the payor.” United States v.
Jefferson-Pilot Life Ins. Co., 49 F.3d 1020, 1022 (4th Cir.
1995).
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Last modified: May 25, 2011