T.C. Memo. 2000-24

UNITED STATES TAX COURT

ALAIN AND MONIQUE MASSOT, Petitioners v

. COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 10086-98. Filed January 19, 2000.

Cynthia C. Smith and George A. Berman (specially

recognized), for petitioners.

Christine Colley and Maureen T. O’Brien , for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

JACOBS, Judge : Respondent determined a $191,580 deficiency in

petitioners’ 1992 Federal income tax. The sole issue for decision

is whether the $600,000 Alain Massot (petitioner) received in 1992- 2 -

as a result of the termination of his employment is excludable from

petitioners’ gross income pursuant to section 104(a)(2).

Unless otherwise indicated, all section references are to the

Internal Revenue Code as in effect for the year in issue, and all

Rule references are to the Tax Court Rules of Practice and

Procedure.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The

stipulations of facts and attached exhibits are incorporated herein

by this reference.

Background

Petitioners resided in Arlington, Massachusetts, at the time

they filed their petition. They timely filed a joint 1992 income

tax return.

Petitioner was born and ra ised in Brittany, France. He

studied at the Institute of Chemistr y of Paris, Sorbonne

University, receiving a degree in chemical engineering in 1970.

Millipore, S.A. and Millipore Corp.

As of September 22, 1992, petitioner was the corporate vice

president for marketing of Millipore Corp. (Millipore), a Fortune

500 company, and a member of its 12-person executive committee.

Millipore’s business originally was based on the manufacturing

and sale of precise membrane filters capable of removing bacteria

and other harmful particles so as to purify water, air, gas, and- 3 -

1 General distribution memoranda were used by Millipore

to communicate quickly with its employees worldwide. Pursuant to

Millipore’s practice, such a memorandum would first be duplicated

and distributed to employees in Millipore’s Bedford,

Massachusetts, headquarters, then faxed to the foreign

subsidiaries with instructions for further dissemination to

Millipore’s worldwide employees. Subsequently, the memorandum

would be delivered into the mailboxes of the individual

employees, displayed on bulletin boards, and translated into

foreign languages. other flui d s in the pharmaceutical, microelectronic, food and

beverage, and ai rcraft industries. Later, Millipore diversified

into the manufacturing and sale of prec i sion instrumentation,

chromatography, and the synthesis of DNA and peptides.

Petitioner began working for Mil lipore, S.A., a French

subsidiary of Millipore, in 1971 as a technical sales

representative in third-world countries. He was promoted numerous

times–-first as area manager for the USSR, the Middle East, and

Africa, then to sales manager, and in 1979, to general manager and

vice president of Millipore, S.A., where he was responsible for the

company’s European membrane division.

Millipore, S.A. contributed to a retir ement account for

petitioner in France.

Relocation to the United States

On May 7, 1986, petitioner was promoted to senior vice

president of worldwide sales for Millipore (for the membrane

division). Petitioner’s promotion was announced in a general

distribution memorandum. 1 Petitioner’s promotion required his and- 4 -

his family’s relocation from Paris to Massachusetts. Petitioner

ceased actively working for and receiving a salary from Millipore,

S.A.; he did, however, continue to receive a French pension. (On

February 2, 1996, petitioner became a U.S. citizen.) In his new

position, peti tioner managed the sales operations of Millipore’s

subsidiaries. Approximately 2 years later, petitioner was promoted

to president of Millipore’s analytical group.

On December 22, 1989, petitioner was promoted to president of

Mill i Gen/Biosearch, a startup division of Millipore (with $16

million in sales and $20 million in losses). This promotion was

announced in a general distribution me morandum, which stated in

relevant part:

This election is evidence of the criti cal role Alain

pla ys in the leadership of the corporation, and of the

diverse management responsibilities he has successfully

undertaken in his many years of service with Millipore.

He has been an important leader directing the evolution

of our European business. He has also been instrumental

in the success of the Analytical G roup, where he

strengthened the management team and helped groom his own

successor as president. And now, as president of

MilliGen/Biosearch, he has assumed one of our most

difficult managerial assignments in a business t hat is

vital to our future.

On August 23, 1991, petitioner was promoted to Millipore’s

corporate vice president of marketing. Petitioner was responsible

for marketing, promotion, public relations, merger and

acquisitions, new business development, and long-range planning for

the entire company. (Petitioner held this position at the time he- 5 -

2 The procedure Mr. Gilmartin followed in terminating

petitioner was not the procedure Millipore managers had been

instructed to follow. These procedures included giving the

employee notice and an explanation for the termination. was terminated, see infra .) This promotion was announced in a

general distribution memorandum.

During petitioner’s tenure at Millipore, the company grew from

approximately $24 million in annual sales (in 1971) to $766 million

(by 1992). Petitioner played a significant role in building the

company.

As of early 1992, pet itioner viewed Millipore and its 5,000

worldwide employees like family. Likewise, he was highly regarded

in the company. Petitioner anticipated that eventually he would

become president of Millipore.

Petitioner’s Termination

During an early morn ing meeting on September 22, 1992, John

Gilmartin, chief executive officer and chairman of the board of

Millipore, informed petitioner that his employment with Millipore

was being terminated effective immediately; Mr. Gilmartin did not

provide petitioner with any reason for this decision. 2 Petitioner

was shocked; he became pale and began trembling. Mr. Gilmartin

handed petitioner a letter containing Millipore’s proposed

termination offer. Under the provisions of that letter, petitioner

would continue to receive his salary, benefits, and exercise

certain stock options for a period of 18 months after his departure- 6 -

on the condition he did not accept a position wit h a competitor

during that period. The letter further stated that should

petitioner accept employment with a competitor, Millipore reserves

the right to terminate petitioner’s monthly salary payments as well

as his right to exercise his stock options.

Shortly after the meeting with Mr. Gilmartin, Millipore’s vice

president of human resources instructed petitioner to turn in his

company badge and keys. After doing so, petitioner met with an

out-placement representative a nd then was asked to leave the

building. Petitioner took a few personal items from his desk,

placed the m in a box, and walked out of the building. Petitioner

was very distressed and considered suicide.

At midday, Millipore employees from ar ound the world

telephoned petitioner, inquiring about a general distribution

memorandum (issued that day) that announced his departure from the

company. The memorandum read:

The history of Millipore is full of individuals who have

shaped the success of our company. Alain Massot most

c ertainly has been among the most significant of these

people. In recent months, however, it has become

increasingly apparent to Alain that his intere sts were

not being fully satisfied within our organization.

I am sorry to report that Alain will be leaving Millipore

this month. I have every confidence that he will be

greatly successful in whatever endeavors he chooses.

Alain departs Millipore with my sincere thanks and with

the best wishes of all of us.- 7 -

After receiving a copy of the memorandum froma colleague,

petitioner became even more distraught because it falsely implied

that he (1) had voluntarily resigned, and (2) was dissatisfied with

Millipore.

On September 25, 1992, petitioner sent Mr. Gilmartin a letter

in which he (1) objected to the circulation of the September 22

memorandum, and (2) explained that he was still conside ring the

company’s termination offer.

Effect on Petitioner

Petitioner’s physical and emotional state de teriorated as a

consequence of his termination. He gained approximately 20 pounds,

his cholesterol leve l increased, he was diagnosed as having

diabetes, and he lost interest in his marital relations. He became

obsessed with his employment termination; he avoided leaving his

home and was unable to sleep.

Before his termination, petitioner negotiated deals for

Millipore all over the world. Following the termination, he lacked

the confidence required for a successful job interview. He felt he

had been defamed and humili ated before his colleagues and the

entire industry in which he had worked. Petitioner was never

offered an executive position with a company comparable to

Millipore. Ultimately, in January 1999, he was offered, and

accepted, a position as vice president for sales and marketing at

a relatively small company.- 8 -

The Negotiations

Petitioner engaged counsel both in the United States and

F rance for advice as to his legal rights as a consequence of his

employment termination. His French attorney advised him that under

French law, in order to obtain recovery against Millipore, he would

have to institute a suit in France against Millipore, S.A. (French

law prohibited abusive dismissal or termination without cause, and

provided for compensatory damages for emotional distress,

indignity, humi liation, and injury to reputation. Such damages

were not taxable under French law.) Petitioner’s French co unsel

informed petitioner that he had a bona fide claim under French law.

Additionally, petitioner was informed that potentially he had

legal ri ghts under a French collective bargaining agreement

governing Millipore, S.A.’s managers and engineers (“convention

collective Ingénieurs et Cadres de la Métallurgie”), which applied

to Millipore employees in France as well as those transferred to

the United States.

P etitioner’s U.S. counsel informed p etitioner that he had

several possible causes of action under Massachusetts law,

including invasion of privacy, defamation, negligent and

intentional infliction of emotional distress

, and negligent firing.

On October 2, 1992, petitioner’s U.S. counsel wrote Mr.

Gilmartin formally rejecting Millipore’s termination offer, as set

forth in Mr. Gilmartin’s September 22, 1992, letter. In the- 9 -

October 2, 199 2 letter, petitioner’s counsel referred to

petitioner’s rights under the Millipore S.A. collective bargaining

agreement and stated that petitioner should receive: (1)

Cumulative damages of $977,814, plus (2) 60 percent of his salary

during the period the noncompeti tion clause would be in effect,

and (3) damages for termination without cause (the French

equivalent of outrageous dismissal). The $977,814 cumulative

damages were calculated as follows:

10 months’salary (based on seniority) $190,000

3 months’ salary (failure to give notice) 57,000

2 years’ salary (termination without cause) 456,000

French pension fund contribution 30,000

Millipore participation plan contribution 15,077

Millipore savings plus match 4,237

Millipore incentive (restricted) stock options 175,500

Millipore non-qualified stock options 50,000

TOTAL 977,814

This letter was referred to Geoffrey Nunes, Millipore’s

general cou nsel and senior vice president. After reviewing the

letter, Mr. Nunes requested the parties to meet. Millipore

anticipated that petitioner would institute suit in Massachusetts

for claims based in tort, as enumerated in petitioner’s counsel’s

October 2 letter, and had potential causes of action in France.

Millipore’s management recognized that petitioner’s claims posed

the risk of significant financial exposure to the company.

The parties met on October 9, 1992. During the course of the

meeting, a heated discussion ensued. Mr. Nunes initially took the

position that petitioner did not have any French or U.S. law claims- 10 -

against Millipore or Millipore, S.A. Petitioner’s U.S. counsel

countered by threatening lega l action. Ultimately, the parties

were able to negotiate the basic terms of a settlement agreement

(the agreement). The agreement, in relevant part, provided:

3. Upon the parties’ execution of this Settlement

Agreement Millipore Corporation will pay in satisfaction

of the obligations undertaken hereunder by Millipore

Corporation and Millipore S.A. to Mr. Massot the sum of

seven hundred fifty-thousand dollars ($750,000), with the

sum of six hundred thousand dollars ($600,000) to be paid

within 24 hours o f the signing of this Settlement

Agreement * * *. Millipore Corporation will also deposit

in an escrow account * * * within 24 hours of the signing

of this Set tlement Agreement, the remaining sum of one

hundred and fifty thousand dollars ($150,000). * * * It

is expres sly understood and agreed that the entire sum

set forth in this paragraph is damages for personal

injury allegedly suffered by Mr. Massot on a ccount of

termination without cause by Millipore Corporation and

Millipore S.A., damaged reputation and emotional distress

caused by Millipore Corporation, which allegations

Millipore Corporation and Millipore S.A. deny.

4. Millipore Corporation and Millipore S.A. are

paying Mr. Massot $750,000 which Mr. Massot accepts as

consideration for this settlement agreement and as

damages for alleged personal injury (a nd not as

remuneration for services performed, for which he

precisely waives any claim), including the full release

of all claims. Mr. Massot further agrees that he will

not apply for or claim unemployment compensation benefits

provided by the French government based on his past

employment with Millipore S.A.

5. The parties shall treat all payments * * * as

payment in settlement of claims for personal injury and

shall not treat or report these payments in any way for

tax purposes or otherwise as compensation for services

rendered.

* * * * * * *

7. Mr. Massot agrees that from and after the date

of this Settlement Agreement through December 31, 1993,- 11 -

he will not be directly or indirectly empl oyed by,

consult for, or in any way provide employee, consultant

or contract work or services for, or serve as a director

of, or have any interest as owner or stockholder in, any

company, partnership, or other business association * *

* which is engaged in competition w ith the lines of

business of Millipore Corporation and Millipore S.A.

existing on September 30, 1992, in any territory in which

Millipore Corporatio n or Millipore S.A. was then doing

business * * *

8. The only remedy of Millipore Corporation and

Millipore S.A. for breach by Mr. Massot of his

obligations set forth in Paragraph 7 will be the

forfeiture of the $150,000 which would otherwise be paid

to Mr. Massot on January 1, 1994. * * *

* * * * * * *

13. This Settlement Agreement shall not in anyway

[sic] be construed as an admission by Millipore

Corporation or Millipore S.A. of liability,

responsibility and/or any wrongdoing against Mr. Massot

which makes Millipore Corporation or Millipore S.A.

li able to Mr. Massot in any way, and Millipore

Corporation and Millipore S.A. disclaim any liability to

Mr. Massot. * * *

* * * * * * *

15. This Settlement Agreement shall not in any way

be construed as an admission by Mr. Massot of liability,

responsibility and/or any wrongdoing against Millipore

Corporation or Millipore S.A. which makes Mr. Massot

liable to Millipore Corporation or Millipore S.A. in any

way, and Mr. Massot disclaims any liability to Millipore

Corporation and Millipore S.A.

The agreement was executed on November 30, 1992. On the same

day, Mr. Nunes sent a letter to petitioner’s U.S. counsel in which

he stated Millipore’s position that “in the event that any tax

authority * * * successfully disputes the treatment of sums paid to- 12 -

Mr. Massot as ‘damages,’ the parties agree that each will be

responsible for its (or his) own tax liability.”

Settlement Payment

In accordance w ith the agreement, on November 30, 1992,

Millipore transferred (by wire) $600,000 in French francs to

petitioner’s French bank account and deposited $150,000 into an

escrow account at the Bank of Boston.

Treatment of Settlement Proceeds

Millipore d id not report the $600,000 settlement proceeds as

“wages, tips, other comp.” on the 1992 Form W-2 it issued to

petitioner; petitioners did not report the $600 ,000 settlement

proceeds as income on their 1992 tax return.

OPINION

The sole issue for decision is whether the $600,000 petitioner

received as a result of the termination of his employment is

excludable from petitioners' 1992 gross income as section 104(a)(2)

damages received on account of personal injury or sickness.

Except as otherwise provided, gross income includes income from

all sources. See sec. 61; C ommissioner v. Glenshaw Glass Co.

, 348

U.S. 426, 4 2 9-430 (1955). Petitioners’ settlement proceeds

constitute gross income unless expressly excepte d by another Code

provision. See C ommissioner v. Schleier

, 515 U.S. 323, 328 (1995);

Rozpad v. Commissioner , 154 F.3d 1, 3 (1st Cir. 1998), affg. T.C.

Memo. 1997-528.- 13 -

Pur suant to section 104(a)(2), gross income does not include

“the amount of any damages received (whether by s uit or agreement

and whether as lump sums or as periodic payments) on account of

personal injuries or sickness”. The applicable regulations provide

that “The term ‘damages received (whether by suit or agreem ent)’

means an amount received * * * through prosecution of a legal suit

or action based upon tort or tort type rights, or through a

settlement agree ment entered into in lieu of such prosecution.”

Sec. 1.104-1(c), Income Tax Regs. A tort is a “‘civil wrong, other

than breach of contract, for which the court will provide a remedy

in the form of an action for damages.’” U nited States v. Burke

, 504

U.S. 229, 234 (1992)(quoting Keeton et al., Prosser and Keeton on

the Law of Torts 2 (5th ed. 1984)). The availability of

compensatory remedies is critical, see Commissioner v. Schleier

,

supra at 333, and such remedies are intended to redress intangible

elements of injury deemed important (e v en though not pecuniary in

t heir consequences), including emotional distress, pain and

suffering, impairment of reputation, personal humiliation, and

mental anguish. See, e.g., U ni ted States v. Burke

, s upra at 235-

236. Thus, in order to exclude damages from gross income pursuant

to secti on 104(a)(2), a taxpayer must prove: (1) The underlying

cause of action is based upon tort or tort type rights, and (2) the

damages were received on account of personal injuries or sickness.

See Commissioner v. Schlei er

, s upra at 336-337; Rozpad v.- 14 -

Commissioner

, supra at 5; Cade v. Commissioner

, T.C. Memo. 1999-394.

We address both requirements.

Tort or Tort Type Rights

Where amounts are received pursuant to a settlement agreement,

t he nature of the claim that was the actual basis for settl ement

controls whether such amounts are excludable from gross income under

section 104(a)(2), and not the validity of the claim. See United

States v. Burke

, supra at 237; Wood ward v. Commissioner , 397 U.S.

572 (1970); Fabry v. Commissioner

, 111 T.C. 305 (1998). The crucial

question is “in lieu of what w as the settlement amount paid”?

Bagley v. Commissioner

, 105 T.C. 396, 406 (1995), affd. 121 F.3d 393

(8th Cir. 1997). Determining the nature of the claim is a factual

inquiry. See Fabry v. Commissioner

, s upra ; Robinson v.

Commissioner

, 102 T.C. 116, 127 (1994), affd. in part, revd. in

pa rt, and remanded on another issue 70 F.3d 34 (5th Cir. 1995);

Burditt v. Commissioner

, T.C. Memo. 1999-117. State law determines

the nature of the legal interests involved. See, e.g., R oemer v.

Commissioner

, 716 F.2d 6 93, 697 (9th Cir. 1983), reversing on

another issue 79 T.C. 398 (1982). Federal law supplies the rule of

decision in determining whether a given payment is su bject to

Federal income tax. See H elvering v. Stuart

, 317 U.S. 154, 162

(1942).

In determining the purpose of the payment, we begin by looking

at the language in the settlement agreement. The language contained- 15 -

in an agreement will be respected to the extent the settlement

agreement is entered into in an adve rsarial context, at arm’s

length, and in good faith. See, e.g., F ono v. Commissioner

, 79 T.C.

6 80, 694 (1982), affd. without published opinion 749 F.2d 37 (9th

Cir. 1984); Srivastava v. Commissioner

, T.C. Memo. 1998-362

. “If the

settlement agreement lacks express language stating that the payment

was (or was not) made on account of personal injury, then the most

important fact in determining how section 104(a)(2) is to be applied

is ‘the int e nt of the payor’ as to the purpose in making the

payment.” M etzger v. Commissioner

, 88 T.C. 834, 847 (1987), affd.

without published opinion 845 F.2d 1013 (3d Cir. 1988).

Here, paragraph 3 of the agreement provides that the $750,000

petitioner is to receive from Millipore constitutes “damages for

personal injury allegedly suffered by Mr. Massot on acc o unt of

termination without cause by Millipore Corporation and Millipore,

S.A., damaged reputation and emotional distress caused by Millipore

Corporation”.

We are satisfied that a portion of the settlem ent proceeds

paid by Millipore to petitioner was to settle tort claims for

personal injury. Relying on both Massachusetts and French law, the

parties understood that petitioner had colorable and bona fide

causes of action based on tort or tort type rights (such a s

defam a tion, invasion of privacy, libel, outrageous dismissal,

intentional or negligent infliction of emotional distress, and- 16 -

3 Possible causes of action in Massachusetts included:

(1) Invasion of privacy; disclosure of private facts about an

employee to other employees is a tort under the Right of Privacy

Act, Mass. Gen. Laws, ch. 214, sec. 1B (1984); Bratt v. IBM

Corp. , 467 N.E.2d 126, 135-136 (Mass. 1984) (test for determining

whether communication of personal information about an employee

by an employer violates the statutory right of privacy requires a

balancing of the “employer’s legitimate business interest in

obtaining and publishing the information against the

substantiality of the intrusion on the employee’s privacy

resulting from the disclosure”); disclosure of private

information about an employee to other employees constitutes

sufficient publication to maintain a libel action, see Bander v.

Metropolitan Life Ins. Co. , 47 N.E.2d 595 (Mass. 1943); (2)

defamation pursuant to Mass. Gen. Laws, ch. 231, sec. 92 (1986);

if a plaintiff shows that a defendant in an action for libel

acted with malice in making a defamatory statement, the plaintiff

may recover even if the statement is true, see Shaari v. Harvard

Student Agencies, Inc. , 691 N.E. 2d 925, 927 (Mass. 1998);

damages for defamation and libel include mental suffering, harm

to reputation and standing in the community, mental anguish, and

personal humiliation; (3) negligent and intentional infliction of

emotional distress caused by the manner and effect of discharge,

see Agis v. Howard Johnson Co. , 355 N.E.2d 315 (Mass. 1976); (4)

unfair termination; and (5) negligent firing. termination wit hout cause). We believe that Millipore took

petitioner’s claims seriously, particularly those in Massachusetts. 3

The manner in which Millipore terminated petitioner potentially

could be considered tortious. The nature of petitioner’s

relationship to the company and the details c oncerning the

termination of his employment were highly personal. Publishing the

general distribution memorandum globally (which falsely ind i cated

that petitioner was dissatisfied with his job and had resigned)

without pet i tioner’s consent, to 5,000 employees of a Fortune 500

company on th e morning of petitioner’s firing, could be deemed a

tactic by Millipore to force petitioner to leave quickly and- 17 -

quietly. By virtue of Millipore’s manner of discharge, petitioner

was humiliated. And petitioner’s mental anguish was so severe that

he considered suicide.

We are mindful that pursuant to paragraph 3 of the agreement,

Millipore denied that petitioner suffered personal injuries or that

it bore any responsibility for causing them. In our opinion, this

disclaimer is merely boilerplate langua g e; that is, standard

operating procedure for a settlement.

Although we do not believe that the entire $750,000 was paid

for personal injury as recited in the agreement, see infra

, we are

satisfied that the agreement was in other respects entered into in

an adversarial setting, at arm’s length, and in good faith. H ostile

negotiation s ensued; these negotiations were undertaken in the

parties’ good faith belief that they had to either re solve their

bona fide dispute or litigate petitioner’s claims. See, e.g., T aggi

v. United States

, 35 F.3d 93, 96 (2d Cir. 1994). Millipore wanted

to limit its financial exposure. Mr. Nunes took into consideration

(a) what it was going to cost Millipore to de fend petitioner’s

claim, (b) what was the likelih ood of Millipore’s losing, and (c)

what the maximum cost to Millipore would be if it lost. He was more

concerne d about the dollar cost to Millipore than the merits of

petitioner’s claims.

We conclude that, from Millipore’s view point, the $750,000

settlement was partly attributable to a d esire to avoid a lawsuit- 18 -

in Massachusetts seeking personal injury damages for damaged

reputation and emotional distress caused by Millipore’s conduct in

terminating petitioner’s employment. Moreover, we believe Millipore

recognized that petitioner’s term ination gave rise to potential

causes of action under French law for termination without cause (a

tort, in nature) as well as a poten tial recovery under the

collective bargaining agreement covering managers and engin eers.

Personal Injuries or Sickness

To prevail, petitioners must als o prove that the proceeds

received from Millipore were on account of personal injuries or

sickness. Personal injury includes both tangible and intangible

harms. See C ommissioner v. Schleier

, 515 U.S. at 330 n.4. These

harms include pain and suffering, emotional d i stress, and harm to

reputation or other c onsequential damages, such as embarrassment,

humiliation, and mental anguish. See U nited States v. Burke

, 504

U.S. at 239; Knevelbaard v. Commissioner , T.C. Memo. 1997-330.

On the basis of the documentary evidence and credible testimony

in this case, we conclude that petitioner suf f ered serious and

prolonged emotional and physical injury arising from Millipore’s

termination. The abrupt manner in whi c h Millipore terminated

petitioner dramatically affected him, resulting in the decline of

his physi c al and emotional well-being. He suffered emotional

distress (embarrassment, humiliation, and mental anguish) manifested

by both mental and physical symptoms, as well as harm to his- 19 -

reputation (i.e., difficulty in finding a comparable position). See

Church v. Commissioner

, 80 T.C. 1104, 1108 (1983). Without a doubt,

here a link between petitioner’s firing and his perso nal injury

exists. See sec. 104(a)(2); C ommissioner v. Schleier

, supra at 330.

The Massachusetts law upon which petitioner’s causes of action were

based allows recovery for personal injury and intangible harms

petitioner suffered. See A gis v. Howard Johnson Co.

, 371 Mass. 140,

355 N.E.2d 315 (1976).

As previously stated, despite the lan g uage in the agreement

which states that the entire $750,000 is for personal injury, we do

not believe that th e entire amount payable to petitioner was on

account of personal injuries or sickness. Rather, we believe that

petitioner’ s counsel placed such language in the agreement in an

attempt to have the moneys petitioner was to receive from Millipore

come within the purview of section 104(a). Millipore did not object

to such language because from Millipore’s viewpoint the language was

inconsequential.

In ou r opinion, the settlement represented (1) severance

compensation, (2) compensation for petitioner’s agreement not to

a ccept employment with a competitor of Millipore, and (3)

c ompensation for personal injuries or sickness suffered by

petitioner as a result of his firing.

Considering all the facts as r evealed by the record, we

conclude that 45.6 percent of the overall $750,000 settlement- 20 -

4 As stated, petitioner’s claims against Millipore did

not sound solely in tort; petitioner’s claims were for breach of

the employment contract as well. Millipore initially offered

petitioner a severance package including 18 months’ salary. We

infer that the settlement petitioner accepted in lieu of that

offer incorporated the element of severance pay, though not

designated as such in the agreement. package was for severance compensation and petitioner’s agreement

not to accept employment with a competitor of Mil lipore, and 54.4

percent was on account of petitioner’s personal injuries or sickness

arising from his firing. 4 Our reasoning for this allocation is as

follows.

When petitioner’s employment with Millipore was terminated on

September 22, 1992, petitioner’s annual salary was approximately

$228,000. Thus, the 18 months’ severance portion of Millipore’s

offer was approximately $342,000. Reducing the overall $750,000

settlement package by $342,000 leaves $408,000, or 54.4 percent, for

the personal injury portion of the settlement package.

On the basis of this 54.4-percent allocation, we conclude that

$326,400 of the $600,000 petitioner received in 1992 was paid on

account of personal in juries or sickness and is excludable from

petitioners’ gross income pursu a nt to section 104(a)(2), and the

balance of $273,600 is taxable.- 21 -

In reaching our conclusions herein, we have considered all

arguments presented and, to the extent not discussed above, find

them to be without merit. To reflect the foregoing,

D ecision will be entered

under Rule 155

.