IRS Sued in Case Involving Severance Pay
A group of 750 former IBM employees sued the Internal Revenue Service on Thursday, seeking $15 million in tax refunds on severance payments they received in company work force reductions.
The former employees say they deserve a refund because as a condition of leaving International Business Machines Corp., they signed an agreement not to sue for discrimination or other claims. The IRS sometimes exempts certain kinds of settlements, such as for personal injury and some types of discrimination, from income tax.
The IRS had not seen the lawsuit Thursday and had no comment, spokesman Steve Pyrek said.
The IRS has maintained that such agreements, common among companies making large job cuts, are not meant to settle a specific injury.
IBM has cut its staff from a little more than 400,000 in 1986 to about 230,000 today.
Millions of people lost jobs in work force reductions at other companies during the late 1980s and early ‘90s. None, however, have mounted a fight like the one carried on by the former IBM workers.
A group of 1,500 former IBM employees in North Carolina sued the IRS in 1994, saying the severance agreement prevented their filing age discrimination lawsuits against IBM. They gave up last year after the U.S. Supreme Court ruled that people must pay taxes on judgments received in workplace age discrimination cases.
A group of former IBM employees in Texas is seeking refunds through U.S. Tax Court.
The latest suit, filed in federal court in Binghamton, N.Y., claims IBM’s downsizing subjected workers to emotional and physical pain and suffering, including “insomnia and other sleep disorders, weight gain, headaches, hypertension, heart trouble and other trauma.”
For some of the people, thousands of dollars are at stake. The payment for a departing IBM worker was often a year’s salary or more. Employees who left near the end of the year had their payment taxed at a higher rate because it was added to salary earned during the rest of the year.
IBM will not be a party to the lawsuit, but it will probably be asked to produce documents as evidence and executives as witnesses.
