Comm'r of Internal Revenue

This case is not covered by Casetext's citator
Tax Court of the United States.Nov 28, 1967
49 T.C. 128 (U.S.T.C. 1967)

Docket No. 3793-66.



Herbert R. Swofford, pro se. Susan Stivers, for the respondent.

Herbert R. Swofford, pro se. Susan Stivers, for the respondent.

Held, the amount of $15,00 received by petitioner in 1964 upon his discharge as an officer from the U.S. Air Force based upon his length of service was severance pay taxable in full as ordinary income. Such payment to petitioner did not qualify for capital gains treatment as a lump-sum distribution from an employees' trust or pension plan under the provisions of secs. 401 and 402, I.R.C. 1954; held, further, respondent's determination as to the allowable depreciation deduction on certain office equipment is sustained.


Respondent determined a deficiency in the 1964 income tax of petitioner in the amount of $1,874.43.

The issues are (1) whether petitioner was correct in reporting the $15,000 which he received as severance pay upon his discharge from the U.S. Air Force, as capital gains or does said payment constitute ordinary income as respondent determined, and (2) was petitioner entitled to deduct $400 as depreciation on office equipment for the taxable year 1964?


Some of the facts have been stipulated and they are found accordingly.

Petitioner is a practicing attorney residing in Orlando, Fla. For the taxable year 1964 petitioner and his wife, Mary B. Swofford, filed a joint income tax return with the district director of internal revenue at Jacksonville, Fla.

Petitioner served as an active member of the uniformed Armed Forces of the United States for 15 years and 2 months. He was honorably discharged from the U.S. Air Force as a member of the regular Air Force on June 30, 1964, having held at the time the rank of captain. At the time of his release from the U.S. Air Force in June 1964, petitioner received $15,000 in lieu of retirement pay. Withholding tax statement for the year 1964 (Form W-2) furnished the petitioner by the U.S. Air Force reflects $15,000 as included in income of the petitioner. Petitioner reported the $15,000 on his 1964 Federal income tax return as employment severance pay and reported the same on Schedule D of his 1964 Federal income tax return as capital gain under sections 401 and 402 of the Internal Revenue Code of 1954.

Also on this income tax return petitioner took a $400 depreciation deduction on office equipment costing $1,250.04.

Respondent's determination of deficiency added $17.83 interest income which is stipulated to be correct; determined the $15,000 severance pay as ordinary income; and determined the office equipment had a useful life of 3 years but was only in service one-fourth of the taxable year 1964 and therefore petitioner was only entitled to one-fourth of a year's depreciation ($416.68) or $104.17.


There is nothing to distinguish this case on its facts from all of the other cases decided by this and other courts where it has been held severance pay such as petitioner received which results from length of service is not to be excluded from income tax. See Elmer D. Pangburn, 13 T.C. 169 (1949); Marshall Sherman Scarce, 17 T.C. 830 (1951); Hoeppel v. Westover, 79 F.Supp. 794 (S.D. Calif. 1948). In the cited cases it was held such severance pay was ordinary income. Here the petitioner concedes that the severance payment in the amount of $15,000 was subject to income tax but the petition alleges it was ‘taxable as a capital gain as provided in Sections 401 and 402, Title 26 of the U.S. Code.’ Petitioner filed no brief but the allegations of his petition and statements petitioner made at the time of trial, and the statements he made in his income tax return clearly show that he bases his contention that the $15,000 was entitled to capital gains treatment under sections 401 and 402, I.R.C. 1954.

The severance pay petitioner received is authorized under 10 U.S.C.sec. 8303(d)(3) giving 2 months' pay times ‘years service’ but not more than $15,000 to honorably discharged officers of the Air Force if the officers are not eligible for retirement.

These statutes are not applicable. In general, section 401 sets forth the requirements for qualification of an employees' trust or pension plan so that contributions of the employer to the trust will be deductible and the income of the trust exempt. Section 402(a)(2) merely provides that where, under certain circumstances, the total distribution payable to an employee is paid within 1 taxable year then the amount of the payment, to the extent that it exceeds the employee's contribution is to be treated as long-term capital gain. There is no need to quote these long statutes in full. Petitioner's entire case for capital gains treatment under these statutes falls in the first two lines of section 402(a)(2) which limits the statute and therefore any capital gains treatment to the ‘case of an employees' trust described in section 401(a).’ Here we have no employees' trust. These statutes are so obviously inapplicable to the severance payment here involved that without further discussion we hold respondent was right in his determination that the $15,000 was taxable as ordinary income.

Petitioner introduced no evidence with respect to the depreciation issue and therefore respondent's determination as to that item is upheld. Since the remaining interest income adjustment in respondent's notice of deficiency is conceded to be correct, decision is rendered for respondent on the entire deficiency.

Decision will be entered for the respondent.

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