Marty J. Meehan - Page 12

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          employment”).14  For example, in Kroposki v. Commissioner, T.C.             
          Memo. 1997-563, we held that certain payments constituted                   
          severance pay because they were determined under a schedule                 
          generally applicable to laid-off employees, based on years of               
          service and base salary.  Likewise, in Webb v. Commissioner, T.C.           
          Memo. 1996-50, we held that an amount a terminated employee                 
          received was severance pay because it was made on the basis of              
          tenure.  See also Broedel v. Commissioner, T.C. Memo. 2001-135.             
               Third, for Federal income tax and withholding purposes,                
          severance pay is treated in the same manner as salary and wages.            
          Under section 61(a), which defines gross income, compensation for           
          services includes salaries, wages, as well as termination or                
          severance pay.  Sec. 1.61-2(a)(1), Income Tax Regs.  Under the              
          employment tax provisions, employers are required to withhold               
          Federal income tax from severance payments in the same manner as            
          salary or wages:  “Any payments made by an employer to an                   
          employee on account of dismissal, that is, involuntary separation           

               14 The Court of Appeals for the Second Circuit has defined             
          “severance pay” as:                                                         
               “a form of compensation for the termination of the                     
               employment relation, for reasons other than the                        
               displaced employees’ misconduct, primarily to alleviate                
               the consequent need for economic readjustment but also                 
               to recompense him for certain losses attributable to                   
               the dismissal.”  [Straus-Duparquet, Inc. v. Local Union                
               No. 3, IBEW, 386 F.2d 649, 651 (2d Cir. 1967) (quoting                 
               Adams v. Jersey Cent. Power & Light Co., 120 A.2d 737,                 
               740 (N.J. 1956)).]                                                     

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