### UNITED STATES COURT OF APPEALS Tenth Circuit Byron White United States Courthouse

1823 Stout Street Denver, Colorado 80294 (303) 844-3157 Patrick J. Fisher, Jr. Elisabeth A. Shumaker Clerk Chief Deputy Clerk January 13, 1997

TO: All recipients of the captioned order and judgment RE: No. 96-9006, Gray v. CIR January 7, 1997 Please be advised of the following correction to th e captioned decision: The Order and Judgment filed January 7, 1997 is WIT HDRAWN. Please substitute the following opinion. The opinion is attached for your convenience. Very truly yours, Patrick Fisher, Clerk

Susie Tidwell Deputy Clerk Encl.

### PUBLISH

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

ROBERT L. GRAY, MARY A. GRAY, Petitioners-Appellants,

v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee, No. 96-9006

Appeal from the United States Tax Court

(No. 4056-94) Robert L. Gray and Mary A. Gray, Pro Se. Ann B. Durney and Edward T. Perelmuter, Attorneys, Tax Division, Department of Justice, Washington, D.C., for Respondent-Appell ee.

Before SEYMOUR , Chief Judge, KELLY and LUCERO , Circuit Judges.

SEYMOUR , Chief Judge.1 After examining the briefs and appellate record, th is panel has determined

unanimously that oral argument would not materiallyassist the determination of this appeal. See Fed. R. App. P. 34(a); 10th Cir. R. 34.1.9. The c ause is therefore ordered submitted without oral argument.

2 Section 104(a)(2) has been amended by the Small Bus iness Job Protection Act of 1996, Pub. L. No. 104-188, § 1605. We rely in this case upon the prior version. -2- Robert L. Gray and his wife Mary appeal the Tax Cou rt’s decision upholding the Commissioner’s assertion of a deficie ncy of $65,336 in federal income tax for the 1990 tax year. We affirm. 1

I. On May 25, 1990, Mr. Gray and Phillips Petroleum Co mpany settled his claim against the company under the Age Discriminat ion in Employment Act (ADEA), 29 U.S.C. §§ 621-634, for $221,000. Half o f the settlement was characterized as representing lost pension and insu rance benefits, and the other half as ADEA liquidated damages. Mr. Gray did not report the settlement amount on his 1990 tax return, apparently believing that t he amount was excluded from gross income by Section 104(a)(2) of the Internal R evenue Code, which provides an exclusion for “any damages received . . . on acc ount of personal injuries or sickness.” 26 U.S.C. § 104(a)(2). 2 After asserting a tax deficiency against Mr. Gray, the IRS in 1991 “abated the tax previously assessed on the age discriminati on proceeds.” Aplt.’s Br. at 17.-3-

It thereafter informed Mr. Gray it was suspending a dministrative action on his case pending the Supreme Court’s disposition of Uni ted States v. Burke , 504 U.S. 229 (1992), in which the Court ultimately held thatbackpay received under the pre-1991 version of Title VII of the Civil Rights A ct of 1964, 42 U.S.C. § 2000ee17, was not excludable from gross income. 504 U.S . at 242. On January 20, 1994, the Commissioner issued a notice of deficienc y based on Mr. Gray’s improper exclusion of the settlement proceeds from gross income. Mr. Gray challenged the deficiency determination in the Tax Court. In the meantime, the Supreme Court decided Commissioner v. Schleier , 115 S. Ct. 2159 (1995), in which it held that awards under the ADEA are not damages received “on account of personal injuries,” and thus are not excludable. Id. at 2167. The Tax Court held Mr. Gray’s case governed by Schleier

.

II. Mr. Gray appears to advance three principal arguments: (1) Schleierdoes not apply because his settlement was for “lost pens ion and insurance benefits” rather than back pay; (2) the settlement should notbe taxable because such settlements were not taxable under the law at the t ime of settlement; and (3) the issuance of the 1991 abatement estops the Commissio ner from asserting the deficiency against the Grays.3 Mr. Gray’s contention that the settlement amount i s not “wages” does not

resolve the question of whether it is excludable fr om income. -4- The Supreme Court’s holding in Schleiercontrols the outcome in this case. In Schleier , the Court set out two independent requirements that a taxpayer must m eet before a recovery may be excluded under § 104(a)(2). First, the taxpayer must demonstrate that the underlying cause of actio n giving rise to the recovery is ‘based upon tort or tort type right s’; and second, the taxpayer must show that the damages were received ‘ on account of personal injuries or sickness.’ 115 S. Ct. at 2167. The Court held that an ADEA se ttlement for backpay and liquidated damages did not satisfy either requireme nt, and thus no part of the settlement was excludable under section 104(a)(2). Id. The analysis in Schleier did not depend upon the characterization of the dam ages received, but rather on the Court’s conclusion that the damages were not th e result of a personal injury. This conclusion applies with as much force to “lostpension and insurance benefits” as it does to back wages. The settlementproceeds are not excludable from gross income. 3 Mr. Gray contends that even if the settlement is ta xable under current law, the settlement should be excludable because it was nontaxable at the time he entered into the settlement. In fact, he asserts t hat he would not have settled for that amount but for the legal advice he received th at the settlement was nontaxable. Contrary to Mr. Gray’s suggestion, how ever, the law on this question was far from clear at the time he entered into his settlement agreement. The IRS4 The only contemporaneous case we have found in this circuit interpreting

the scope of Section 104(a)(2) is Wulf v. City of W ichita , 883 F.2d 842, 873 (10th Cir. 1989), in which we held a damage award f or termination in violation of the First Amendment to be excludable because it aro se from a “tort-type claim.” -5- has consistently maintained that Mr. Gray’s settlem ent is taxable. Although Mr. Gray is correct that at the time of his settlement agreement several circuits had held some elements of ADEA damage awards excludable from gross income, see, e.g. , Redfield v. Insurance Co. of No. Am. , 940 F.2d 542 (9th Cir. 1991); Pistillo v. Commissioner , 912 F.2d 145 (6th Cir. 1990); Rickel v. Commissio ner , 900 F.2d 655 (3d Cir. 1990), the courts of appeals were in conflict on taxability of ADEA awards, see Downey v. Commissioner , 33 F.3d 836, 839-40 (7th Cir. 1994) (listing conflicting circuits on issue of whether A DEA liquidated damages are taxable). Neither this circuit 4 nor the Supreme Court had spoken on the question. It has long been recognized that the Commissioner h as the power to reopen his determination of taxes owing at any time withinthe statutory limitations period. Burnet v. Porter , 283 U.S. 230, 231 (1931) (Commissioner may reopen case and disallow a deduction after expressly decid ing to allow it); Commissioner v. Wilson , 60 F.2d 501, 503 (10th Cir. 1932) (“[The Commissi oner] has the power, within the period of limitations, to make su ch reexaminations, redeterminations, and reassessments as may be neces sary to collect the entire deficiency.”); Harriton v. Lucas , 41 F.2d 429, 430 (D.C. Cir. 1930) (same); McIlhenny v. Commissioner , 39 F.2d 356 (3rd Cir. 1930) (same as Porter ); Austin Co. v. Commissioner , 35 F.2d 910, 912 (6th Cir. 1929) (Commissioner is not-6-

estopped from redetermining taxes owed even when th e prior determination was based on Commissioner’s legal error.). Finally, Mr. Gray apparently suggests that regardle ss of the applicable law, the IRS’ 1991 abatement of taxes owed on the settle ment estops the Commissioner from now asserting a deficiency. On the contrary, it is settled law that the issuance of an abatement does not prevent the Commissioner from redetermining or reassessing a tax deficiency, so l ong as the Commissioner acts before the expiration of the applicable statute of limitations. Service Bolt & Nut Co. v. Commissioner , 724 F.2d 519, 524 (6th Cir. 1983) (“[T]he abateme nt of an assessment is not a binding action that can estop the Commissioner from reassessing a deficiency.”); Baumgartner v. Commiss ioner , 21 B.T.A. 623, 625 (1930) (same); Zeile v. Commissioner , 20 B.T.A. 1039, 1040 (1930) (“That the Commissioner is not estopped from reasserting a def iciency, theretofore abated by him, is now so well established by the decisions of this Board, as well as by appellate courts, that we deem it unnecessary to ci te authorities.”). In essence, an abatement is a unilateral statement by the Commissi oner that his collectors will not currently seek payment. Generally speaking, th erefore, an abatement does not create a right in the taxpayer absent an explicit a greement between the taxpayer and the Commissioner. See, e.g. , McIlhenny , 39 F.2d at 358; L. Loewy & Son, Inc. v. Commissioner , 31 F.2d 652, 654 (2d Cir. 1929); Baumgartner , 21 B.T.A. at 625. Mr. Gray filed his 1990 return on April 11 , 1991. The Commissioner issued the notice of deficiency January 20, 1994, w ithin the three year limit.-7-

We AFFIRM the Tax Court’s ruling in favor of the Commissione r.