IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_______________

No. 97-60736

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NEIL D. LUBART; VY LUBART

Petitioners-Appellants,

VERSUS

COMMISSIONER OF INTERNAL REVENUE,

Respondent-Appellee.

_________________________

Appeal from the Decision

of the United States Tax Court

_________________________

September 28, 1998

Before DeMOSS, PARKER, and DENNIS, Circuit Judges.

PER CURIAM:

Petitio ner Neil D. Lubart appeals the Tax Court’s summary

judgment against him on his claim that $74,985 of income received

upon his resignation constituted payment on account of sickness or

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

Revenue Code. Because the allegations in the pleadings demonstrate

that IBM offered the payment in lieu of damages and not to settle

a claim for personal injury, we affirm.

A.

Lubart was a successful engineer employed with International2

Business Machines Corp. (IBM) until 1992. At some point in 1992,

Lubart became eligible to participate in IBM’s Modified and

Extended Individual Transition Option Program (ITO II). This

program was 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 categ ory requirements. Under the voluntary program,

employees could choose to accept a lump sum payment in return for

their voluntary resignation and release of all potential c laims

against IBM arising out of their employment or its termination.

The agreement provided, in relevant part, that Lubart agreed

as follows:

to release International Business Machines corporation

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

liabiliti es 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 assign s (hereinafter

“th ose 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 dealing with discrimination in employment on the

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 you would not have been entitled

had you not signed the release.

...1 The relevant portion of the release agreement read as follows:

IBM ADVISES YOU TO 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 voluntary, or you believe the process

by which you have been offered this release or the payment in exchange for

this release is dis criminatory, you are encouraged to discuss this with

your management or Personnel before signing this release. After reviewing

the releas e with your attorney, you can discuss concerns you have with

your manager or your attorney can contact legal counsel at your location.

You should thoroughly review and understand 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.

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

have that arise after the date you sign this release.

... 6. In the event 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.

Lubart claims that he was coerced into resigning, but he did

not complain of this or of any other tort claim to company

officers, despite a clause in the con tract suggesting that

employees consider the offer carefully, consult with their

attorneys, and discuss any tort claims with the comp any. 1 He

signed the release on July 31, 1992, apparently without doing any

of these things. He received a lump sum special incentive payment

of $74,985 calculated, like other ITO II payments, on the basis of

his years of service and rate of pay. IBM withheld federal income

taxes, social security taxes, and Medicare taxes from the payment.4

The year after Lubart left IBM, his wife was diagnosed with

Alzheimer’s disease. Although Lubart had never suffered from

depression before, after these events occurred he fell into a deep

depression and sought treatment from three doctors.

When he filed his 1992 income tax return, Lubart excluded the

special incentive payment from his gross income. He claimed on a

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

for personal injury excludable from income under Section 104(a)(2)

of the Internal Revenue Code as a payment on account of sickness or

personal injury. S ee 26 U.S.C. § 104(a)(2) (1998). The

Commissioner assessed a deficiency of $22,553. Shortly thereafter,

Lubart joined a suit with forty other taxpayers who had received

ear ly retirement payments from IBM. Because most of those

taxpayers, unlike Lubart, had suffered noth ing that might be

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

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

On May 22, 1997, the Commissioner filed a motion for summary

judgment. In granting the motion, the Tax Court noted that the

intent of the employer would determine the treatment of the

payment. S ee Knuckles v. Commissioner

, 349 F.2d 610, 612 (10th

Cir. 1965). It found that the payment was in the nature of

severance pay rather than of compensation for personal injury

because Lubart had not asserted any claim at the time he signed the

release, because the release was a standard document offered to all5

employees, because the amount of the payment was calculated based

on Lubart’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 court noted that the

release makes no attempt to allocate the payment between severance

pay and personal injuries, and that Lubart 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 is

no genuine issue of mat erial 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

specific facts showing th ere is a genuine issue for trial. Rule

121(d).

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

the aspects of the agre ement noted by the Tax Court do not prove6

IBM intended these payments solely as severance pay. Lubart does

not meet his burden of providing specific facts showing there is a

genuine issue of fact for trial, however. Lubart 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 evidence to the contrary,

however, Lubart provides only the irrelevant evidence of his

subsequent depression and his unsubstantiated allegations that IBM

forced him to sign the agreement. These allegations do not

contradict the obvious conc lusion from the language of the

agreement, the nature of the program, and the calculation of the

payment itsel f, that IBM intended the payment as compensation of

wages lost upon early retirement and not to settle personal injury

claims.

Lu bart’s case presents no novel issues. In W ebb v. CIR

, 71

T.C.M. (CCH) 2004 (1996), the Tax Court considered almost identical

facts: A taxpayer who retired early under the IBM ITO program,

suffered mental anguish after the resignation, and then claimed for

the first time that he signed the release under protest. The court

characterized the payment as severance, noting that under the

taxpayer’s de scription of the facts, “the Release itself was the

c ause of the injury.” I d. The court also cited the factors

considered by the court below in this case. Lubart’s claim suffers

the same defects. Like the plaintiff in Webb , Lubart essentially2 The Supreme Court has held that damages under the ADEA are not excludable

under § 104(a)(2) because they compensate lost wages and impose punitive damages,

but do not contain an emotional distress or other personal injury com ponent.

Commissioner v. Schleier

, 515 U.S. 323, 326 (1995). Accordingly, Lubart’s

payment could only be excluded to the extent it settled a potential state

law emotional distress claim. Because Lubart would have had difficulty proving

the kind of outrageous conduct required by Texas law, it is especially unlikely

that the special incentive payment was intended to settle such a claim.

7 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 s imultaneous special

incentive payment could not have been made to resolve an existing

claim for personal injury.

Favorable tax treatment has even been denied in the Second

Circuit when part of a severance payment was expressly conditioned

upon the release of claims. Under Lubart’s argument, the mere 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 the result in T aggi v.

United States

, 35 F.3d 93, 96-97 (2d Cir. 1994). In that case, the

taxpayer took early retirement under an AT&T program that offered

two incentive payment options. Under one, the taxpayer 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. In order to receive the higher payment, he had to

sign a Separation Agreement and Release, which claimed to be a

“full legal release.” I d

. at 94. After he resigned, he attempted8

to bring a claim under the Age Discrimination in Employment Act, 29

U.S.C. §§ 621-634 (the “ADEA”). When this claim was dismissed

because of the Separation Agreem ent, the taxpayer made a refund

claim asking that the incentive payment be treated as a payment for

personal injury under Section 104(a)(2).

Although Taggi’s claim was much stronger than Lu bart’s, the

Second Circuit denied section 104(a)(2) treatment. Id . at 96-97.

It cited Treasury Regul ation § 1.104-1(c), which provides that

damages received on a ccount of personal injuries or sickness 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.” 26 C.F.R. § 1.104-1(c).

The court noted that exclusions from income are to be defined

narrowly and that parties must be prohibited from c reating

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 section

104(a)(2) were construed to encompass releases of potential

unspecified future claims, as Lubart recommends, manufacturing

section 104(a)(2) tax treatment would be simple.

While the parameters for section 104(a)(2) treatmen t remain

somewhat undefined, Lubart’s case ob viously does not fit within

them. Because Lubart has alleged no facts to contradict IBM’s

obvious intent to provide severance pay, the decision of the Tax9

Court is AFFIRMED.