IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

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No. 97-60732

Summary Calendar

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JOSEPH J. GAJDA and LILLIAN A. GAJDA,

Petitioners-Appellants,

VERSUS

COMMISSIONER OF INTERNAL REVENUE,

Respondent-Appellee.

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Appeal from a Decision of

the United States Tax Court

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August 7, 1998

Before JONES, SMITH, and STEWART, Circuit Judges.

JERRY E. SMITH, Circuit Judge: *

Joseph Gajda, who files tax returns jointly with his wife

Lillian Gajda, appeals the Tax Court’s summary judgment on Joseph’s

claim that $91,690 of income received upon his resignation from

employment constituted payment on account of sickness or personal

injury excludable under section 104(a)(2) of the Internal Revenue

Code. Because the pleadings demonstrate that the employer offered2

the payment in lieu of damages and not to settle a claim for

personal injury, we affirm.

A.

Gajda was an engine er employed with International Business

Machines Corp. (“IBM”) for thirty-two years. At some point in

1993, he became eligible to participate in IBM’s Modifi ed and

Extended Individual Transition Option Program (“ITO II”), which had

been implemented as part of IBM’s effort to reduce the size of its

workforce and was offered to all employees who met certain age and

job category requirements.

Under the voluntary program, employees could choose to accept

a lump-sum payment in return for their voluntary resign ation and

release of all potential claims against IBM arising out of their

employment or its termination. The agreement provided, in relevant

part, that Gajda agreed

to release International Business Machines corporation

(hereinafter, IBM), from all claims, demands, actions or

liabilities you may have against IBM of whatever kind,

including but not limited to those which are related to

your employment with IBM or the termination of that

employment. You agree this also releases from liability

IBM’s agents, directors, officers, employees,

representatives, successors and assigns (hereina fter

“those associated with IBM”). You agree that you have

e xecuted this release on your own behalf, and a lso on

behalf of any heirs, agents, representatives, successors

and assigns that you may have now or in the future. You

also agree that this release covers but is not limited to

claims arising from the Age Discrimination in Employment

Act of 1967, as amended, Title VII of the Civil Rights

Act of 1964, as amended, and any other federal or state

law d ealing with discrimination in employment on the1 The relevant portion of the release agreement read as follows:

IBM ADVISES YOU T O CONSULT AN ATTORNEY BEFORE YOU SIGN THIS

RELEASE

If you feel that you are being coerced to sign this release or

that your signing would for any reason not be volunt ary, or

you believe the process by which you h ave been offered this

release or the payment in exchange for this release is

discriminatory, you are encouraged to discuss this with your

(continued...)

3 basis of sex, race, national origin, religion, disability

or age. You also agree that this release includes claims

based on theories of contract or tort, whether based on

common law or otherwise.

...

1. The benefits provided pursuant to the ITO Program

constitute consideration for this release, in that these

are benefits to which yo u would not have been entitled

had you not signed the release.

...

3. This release does not waive any claims which you may

have that arise after the date you sign this release.

...

6. In the even t of a rehire by IBM or any of its

subsidiaries as a regular employee, you understand that

IBM reserves the right to require repayment of a prorated

portion of the ITO II Program payment. The amount of the

repayment will be based on the number of weeks off the

IBM payroll compared with the number of weeks salary used

to calculate your payment.

Gajda claims that he was pressured into resigning, but he did

not complain of this or of anything else to company officers,

despite a clause in the contract suggesting that employees consider

the offer carefully, consult with their attorneys, and discuss any

tort claims with the company. 1 He signed the release in 1993,(...continued)

management o r Personnel before signing this release. After

reviewing the release with your attorney, you c an discuss

concerns you have with your manage r or your attorney can

contact legal counsel at your location. You should thoroughly

review and unde rstand the effects of the release before

signing it.

A footnote acco m panying this paragraph described the potential discrimination

claims an employee might have, including claims under the ADEA and state and

local law.

4 apparently without doing any of these things, although he was given

at least forty-five days to consider the offer. He received a lump

sum special incentive payment of $91,690 calculated, like other

ITO II payments, on the basis of his years of service and rate of

pay. IBM withheld federal income, social security, and Medicare

taxes. After these events occurred, Gajda fell into a deep

depression and sought treatment from three doctors.

When he filed his 1993 income tax return, Gajda excluded the

special incentive payment from gross income. He claimed on a

Form 8275, “Disclosure Statement,” that the income was a payment

for “age discrimination and other potential tort claims” excludable

from income under 26 U.S.C. § 104(a)(2) as a payment on account of

sickness or personal injury. The Commissioner assessed a

deficiency of $33,343.

Gajda joined a suit with seventeen other taxpayers who had

received early retirement payments from IBM. Because most of those

taxpayers, unlike Gajda, had suffe red nothing that might be

interpreted as “personal injury” for which they might have had a

claim against IBM, the Tax Court severed Gajda’s case.5

The Tax Court granted summary judgment in favor of the

Commissioner, noting that the intent of the emplo yer would

determine the treatment of the payment. S ee Knuckles v.

Commis sioner , 349 F.2d 610, 612 (10th Cir. 1965). It found that

the payment was in the nature of sever ance pay rather than of

compensation for personal inj ury, because Gajda had not asserted

any cla im at the time he signed the release, because the release

was a standard document offered to all employees, b ecause the

amount of the payment was calculated based on Gajda’s salary and

number of years of service, and because the agreement required

repayment of a pro rata portion of the incentive payment depending

on the employee’s length of time between the resignation and the

rehire. Finally, the Tax Court noted that the release makes no

attempt to allocate the payment between severance pay and personal

injuries, and that Gajda had offered no facts upon which an

allocation could be based.

B.

Summary judgment is appropriate “if the pleadings, answers to

interrogatories, depositions, admissions, and any other acceptable

materials, together with the affidavits, if any show that there is

no genuine issue as to any material fact and that a decision may be

rendered as a matter of law.” T AX C OURT R ULES OF P RACTICE AND P ROCEDURE

121(b). The moving party bears the burden of proving that there is6

no genuine issue of material fact, and factual inferences are

viewed in the light most favorable to the nonmovant. U nited States

v. Diebold, Inc.

, 369 U.S. 654, 655 (1962 ). The opposing party

cannot rest upon mere allegations or denials, but must set forth

spec ific facts showing there is a genuine issue for trial. T A X

C OURT R ULES OF P RACTICE AND P ROCEDURE 121(d).

Gajda argues that IBM’s intent is a question of fact and that

the aspects of the agreement noted by the Tax Cou rt do not prove

that IBM intended these payments solely as severance pay. Gajda

does not meet his burden of providing specific facts showing there

is a genuine issue of fact for trial, however.

Gajda is correct that the factors considered by the Tax Court

do not conclusively demonstrate that IBM intended the payment as

severance pay in the face of evidence to the contrary. For such

evidence to the contrary, however, Gajda provid es only the

i rrelevant evidence of his subsequent depression and his

unsubstantiated allegations that IBM forced hi m to sign the

agreement. These allegations do not contradict the obvious

conclusion from the language of the agreement, the nature of the

program, and the calculat ion of the payment itself, that IBM

intended the payment as co mpensation of wages lost upon early

retirement and not to settle personal injury claims.

Gajda’s case presents no novel issues. In W ebb v. Commissioner

, 71 T.C.M. (CCH) 2004 (1996), the Tax Court considered2 Damages under the ADEA are not excludable under § 104(a)(2) because they

compensate lost wages a nd impose punitive damages, but do not contain an

emotional distress or other personal injury component. C ommissioner v. Schleier

, 515 U.S. 323, 326 (1995). Accordingly, Gajda’s payment could only be excluded

to the extent it settled a potential state-law emotional distress claim.

7 almost identical facts: A taxpayer who retired early under the IBM

ITO program, suffered mental anguish after the resig nation, and

then claimed for th e first time that he signed the release under

protest. The Tax Court characterized the payment as severance,

noting that under the taxpayer’s description of the fac ts, “the

Release itself was t he cause of the injury.” I d. The Tax Court

also cited the same f actors it considered in the instant case.

Gajda’s claim suffers the same defects. Like the plaintiff in

Webb

, Gajda essentially argues that he has an ADEA or emotional

distress claim based on the fact that IBM forced him to resign and

sign the release. 2 Because the wrongful act leading to his

subsequent depression did not occur prior to the signing of the

release, the simultaneous special incentive payment could not have

been made to resolve an existing claim for personal injury.

Under Gajda’s argument, the m ere fact that IBM foresaw

lawsuits arising out of the ITO II program meant that the payment

was in part a settlement of those potential future claims. This

argument is contradicted by Taggi v. United States

, 35 F.3d 93, 96-

97 (2d Cir. 1994).

In Tag gi , the taxpayer took early retirement under an AT&T

program that offered two incentive payment options. Under one, the8

t axpayer would have received three percent of his base pay

multiplied by the number of years he had worked at AT&T. Under the

second, he would receive five percent. To receive the higher

payment, he had to sign a Separation Agreement and Release, which

clai med to be a “full legal release.” I d

. at 94. After he

resigned, he attempted to bring a claim under the ADEA. When this

claim was dismissed b ecause of the Separation Agreement, the

taxpayer made a refund claim asking that the incentive payment be

treated as a payment for personal injury under § 104(a)(2).

Although Taggi’s claim was much s tronger than Gajda’s, the

court denied § 104(a)(2) tre atment. I d

. at 96-97. It cited

26 C.F.R. § 1.104-1(c), which provides that damages r eceived on

account of personal injuries or sic kness are those 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.” The court noted that exclusions from

income are to be defined narrowly and that parties must be

prohibited from creating contrived “settlement agreements” to avoid

taxation of the proceeds. In order to prevent such contrived

settlements, the courts must require the presence of an actual

dispute. If § 104(a)(2) were construed to encompass releases of

potential unspecified future claims, as Gajda recommends,

manufacturing § 104(a)(2) tax treatment would be simple.

While the parameters for § 104(a)(2) treatment remain somewhat9

undefined, Gajda’s case obviously does not fit wi thin them.

Because Gajda has alleged no facts to contradict IBM’s obvious

intent to provide severance pay, the decision of the Tax Court is

AFFIRMED.