The workers claimed that because IBM required employees to waive their right to sue before receiving the severance payments, the payments were in lieu of damages for lawsuits they could have filed against the company. The IRS successfully argued that the waiver did not transform the severance payments, which were based on salary and years of service, into tax-free damages payments.
See "Judge Voids Ex-I.B.M. Employees' Suit on Buyout Taxes", David Cay Johnston, The New York Times, December 8, 1999