At the time of signing the release petitioner had no legal claims pending against IBM for unlawful employment practices. ³ Petitioner, however, thought that he had a claim against IBM pursuant to the ADA for compensatory and punitive damages, as well as damages for emotional distress, as a result of its alleged discriminatory treatment of him.

In exchange for signing the release and participating in1997 Tax Ct. Memo LEXIS 417">*425 the ITO II Program, petitioner received a $ 94,174 lump-sum payment (the payment or ITO payment). The payment amount for each participant in the ITO II Program was calculated using the same mathematical formula based on years of service.

For the year 1992 petitioner received a Form W-2 from IBM showing wages, tips, and other compensation of $ 218,329. Petitioners attached a disclosure statement to their 1992 return, asserting that the $ 94,174 ITO payment is excludable from gross income pursuant to section 104(a) (2) as a payment received in exchange for the release and settlement of tortlike rights. Respondent determined that the ITO payment was fully taxable severance pay.

Discussion

Except as otherwise provided, gross income includes income from all sources. Sec. 61(a); Commissioner v. Glenshaw Glass Co., 348 U.S. 426">348 U.S. 426 (1955). While section 61(a) is to be broadly construed, statutory exclusions from income are narrowly construed. Commissioner v. Schleier, 515 U.S. 323">515 U.S. 323, 515 U.S. 323">328 (1995); Kovacs v. Commissioner, 100 T.C. 124">100 T.C. 124, 100 T.C. 124">128 (1993), affd. without published opinion 25 F.3d 1048">25 F.3d 1048 (6th Cir. 1994).1997 Tax Ct. Memo LEXIS 417">*426

Under section 104(a)(2), gross income does not include "the amount of any damages received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal injuries or sickness". Section 1.104-1(c), Income Tax Regs., provides:

(c) Damages received on account of personal injuries or sickness. * * * The term "damages received (whether by suit or agreement)" means an amount received * * * through prosecution of a legal suit or action based upon tort or tort type rights, or through a settlement agreement entered into in lieu of such prosecution.

Thus, an amount may be excluded from gross income only when it was received both: (1) Through prosecution or settlement of an action based upon tort or tort type rights; and (2) on account of personal injuries or sickness. 515 U.S. 323">Commissioner v. Schleier, supra;Wesson v. United States, 48 F.3d 894">48 F.3d 894, 48 F.3d 894">901-902 (5th Cir. 1995); Bagley v. Commissioner, 105 T.C. 396">105 T.C. 396, 105 T.C. 396">416 (1995).

Where damages are received pursuant to a settlement agreement, the nature of the claim that was the actual basis for settlement controls whether such1997 Tax Ct. Memo LEXIS 417">*427 damages are excludable under section 104(a)(2). United States v. Burke, 504 U.S. 229">504 U.S. 229, 504 U.S. 229">237 (1992); Thompson v. Commissioner, 866 F.2d 709">866 F.2d 709, 866 F.2d 709">711 (4th Cir. 1989), affg. 89 T.C. 632">89 T.C. 632 (1987); Robinson v. Commissioner, 102 T.C. 116">102 T.C. 116, 102 T.C. 116">126 (1994), affd. in part and revd. in part 70 F.3d 34">70 F.3d 34 T.C. 116, 126 (1994), affd. in part and revd. in part 70 F.3d 34">70 F.3d 34 (5th Cir. 1995). "The critical question is, in lieu of what was the settlement amount paid?" 105 T.C. 396">Bagley v. Commissioner, supra at 406.

Determination of the nature of the claim is factual. Id.; Stocks v. Commissioner, 98 T.C. 1">98 T.C. 1, 98 T.C. 1">11 (1992). The first requirement is the existence of a claim based upon tort or tort type rights. 515 U.S. 323">Commissioner v. Schleier, supra at 335. The claim must be bona fide, but not necessarily valid; i.e., sustainable. 102 T.C. 116">Robinson v. Commissioner, supra at 126; 98 T.C. 1">Stocks v. Commissioner, supra at 10; Sodoma v. Commissioner, T.C. Memo. 1996-2751997 Tax Ct. Memo LEXIS 417">*428 (citing Taggi v. United States, 35 F.3d 93">35 F.3d 93, 35 F.3d 93">96 (2d Cir. 1994)). In this connection, we have held that claims for potential future personal injuries do not qualify for exclusion under section 104(a). Roosevelt v. Commissioner, 43 T.C. 77">43 T.C. 77 (1964); Starrels v. Commissioner, 35 T.C. 646">35 T.C. 646 (1961), affd. 304 F.2d 574">304 F.2d 574 (9th Cir. 1962). Such holdings imply that there must be an existing claim. Moreover, while the claim need not have been previously asserted, the absence of any knowledge of the claim on the part of the employer-payor obviously has a negative impact in determining the requisite intent of the payment. Sodoma v. Commissioner, T.C. Memo. 1996-275; see also Keel v. Commissioner, T.C. Memo. 1997-278; Foster v. Commissioner, T.C. Memo. 1996-26.

Petitioner asserts that he had a bona fide claim against IBM pursuant to the ADA for infliction of emotional distress, and therefore IBM accepted his ITO II Program participation request and subsequent release in lieu of litigation. 1997 Tax Ct. Memo LEXIS 417">*429 In so arguing, petitioner places heavy reliance on the Supreme Court's decision in 515 U.S. 323">Commissioner v. Schleier, supra. In Schleier, the Supreme Court noted that "one of the hallmarks of traditional tort liability is the availability of a broad range of damages to compensate the plaintiff fairly for injuries caused by the violation of his legal rights." 515 U.S. 323">Id. at 335 (citing 504 U.S. 229">United States v. Burke, supra at 235.) Petitioner asserts that the ADA provides for a broad range of tortlike remedies, as contemplated by Schleier. An aggrieved employee bringing a claim under the ADA is entitled to seek compensatory and punitive damages, as well as damages for emotional pain, suffering, inconvenience, mental anguish, loss of enjoyment of life, and other nonpecuniary losses. 42 U.S.C. sec. 1981a(b). Moreover, petitioner asserts that IBM was aware of such claims, because he complained to his supervisor of the grievances he had against IBM for such employment discrimination. ⁴

1997 Tax Ct. Memo LEXIS 417">*430 Respondent contends that before petitioner executed the release, he presented his complaints only orally and only to his supervisor. Respondent argues that petitioner's failure to send IBM a written letter, to seek legal advice, or to lodge any formal tortlike claim against IBM prior to and at the time of signing the release establishes that there was no bona fide dispute between petitioner and IBM that could provide the basis for settlement.

We agree with petitioner that an employee is not required to file a formal legal action against an employer prior to settling an existing claim in order to exclude such a settlement payment from income under section 104(a) (2). Sodoma v. Commissioner, supra. Viewing the facts in the light most favorable to petitioner, it can be argued that petitioner's act of informing his supervisor of his complaints against IBM is at least some evidence of an existing dispute between the parties that could have provided the basis for settlement. Moreover, we tend to agree with petitioner that the ADA provides for a broad range of tortlike remedies as discussed by the Supreme Court in both Burke and Schleier. Thus, we1997 Tax Ct. Memo LEXIS 417">*431 find, for purposes of this motion only, that petitioner has met the first prong of excludability under section 104(a) (2) in that he has established the existence of an underlying tort-type cause of action. See Commissioner v. Schleier, 515 U.S. 323">515 U.S. 323 (1995); see also 35 F.3d 93">Taggi v. United States, supra at 96 (a claim must be bona fide, but does not necessarily have to be sustainable or valid).

We now turn to the language of the release itself. The release in this case is the same as that in Webb v. Commissioner, T.C. Memo. 1996-50, and essentially the same as that in Sodoma v. Commissioner, supra.By its terms, petitioner released IBM from liability for both contract and tort claims. The release, however, does not specifically indicate that the lump-sum payment received by petitioner was paid to settle a potential personal injury claim against IBM pursuant to the ADA. We note that where the settlement agreement lacks express language stating what the settlement amount was paid to settle, then the most important factor is the intent of the payor. Knuckles v. Commissioner, 349 F.2d 610">349 F.2d 610, 349 F.2d 610">612 (10th Cir. 1965),1997 Tax Ct. Memo LEXIS 417">*432 affg. T.C. Memo. 1964-33; 98 T.C. 1">Stocks v. Commissioner, supra at 10. Here, respondent argues, and we agree, that IBM did not make the payment on account of a personal injury. The release form appears to be a standard document used by IBM for all of its employees who participate in the ITO II Program. Moreover, IBM calculated the amount of the $ 94,174 lump-sum payment received by petitioner using the same mathematical formula for each participant in the ITO II Program based on the participant's individual years of service. Finally, the release states that if petitioner were rehired by IBM, he could be required to repay some portion of the lump-sum payment based on the number of weeks off the IBM payroll compared with the number of weeks' salary used to calculate the lump-sum payment. As in Sodoma v. Commissioner, T.C. Memo. 1996-275, and Webb v. Commissioner, supra, the lump-sum payment herein appears to have been severance pay rather than a payment for personal injury. Severance pay, just like the pay it replaces, is taxable income.

Finally, we note that petitioner has1997 Tax Ct. Memo LEXIS 417">*433 not alleged or come forward with any evidence of the specific amounts of the payments allocable to claims of tort or tort-type damages for personal injuries. The release makes no allocation, and petitioner has not set forth any facts upon which he would rely to prove an allocation. Indeed, the fact that the $ 94,174 was based on petitioner's years of service points in the direction of its having been severance pay rather than a payment for personal injury. See Webb v. Commissioner, supra, which involved the same payor and substantially the same plan as involved herein.

In sum, we conclude that there is no material issue of fact which requires a trial. Accordingly, we hold that respondent's motion for summary judgment will be granted and petitioners' motion for summary judgment will be denied.

To reflect the foregoing,

An appropriate order and decision will be entered granting respondent's motion for summary judgment and denying petitioners' motion for summary judgment.