The opinion of the court was delivered by: MAROVICH
GEORGE M. MAROVICH, UNITED STATES DISTRICT JUDGE.
This case is before the court on the parties' cross motions for summary judgment. The facts are not in dispute. The legal issue is whether benefits received by plaintiff pursuant to 45 U.S.C. Section 797 of Title VII of the Regional Rail Reorganization Act of 1973 (as amended by the Northeast Rail Service Act of 1981 ("NERSA"), Pub L. No. 97-35, 95 Stat 643 (1981)), are taxable as ordinary income. The court holds that the benefits are subject to taxation; thus, plaintiff's motion for summary judgment is denied and defendant's cross-motion for summary judgment is granted.
In 1982, plaintiff Anne Kelly received the sum of $ 20,000 as a lump sum termination benefit pursuant to 45 U.S.C. Section 797 of Title VII of the Regional Rail Reorganization Act of 1973 ("Title VII"). In May, 1984, the Railroad Retirement Board advised Kelly that the benefits were taxable. Plaintiff reported the benefits as income and paid the tax thereon in June, 1985 -- after an IRS audit. Plaintiff was ultimately assessed a total of $ 15,297.40 in tax, interest, and penalties on the $ 20,000 she received. Plaintiff filed a refund claim with the IRS which was denied. An administrative appeal of the claim was also denied.
This case essentially involves a question of statutory interpretation. Plaintiff argues that the lump sum benefit she received is specifically exempted from taxation by Section 797d(b) of NERSA. That section states:
(b) Treatment of benefits
Any benefits received by an employee under an agreement entered into pursuant to section 797 of this title and any termination allowance received under section 797 of this title shall be considered compensation solely for purposes of --
(1) the Railroad Retirement Act of 1974 (45 U.S.C. 231 et seq.); and
(2) determining the compensation received by such employee in any base year under the Railroad Unemployment Insurance Act (45 U.S.C. 351 et seq.).
45 U.S.C. § 797d(b) (emphasis added).
Plaintiff submits that the emphasized language exempts Title VII benefits from taxation under the Internal Revenue Code, 26 U.S.C. Sections 1, et seq. The government contends that the benefits are ordinary income subject to taxation and that the language in issue is not specific enough to constitute an exemption from taxation. The government's position has been adopted by two courts. In Herbert v. United States, 850 F.2d 32 (2d Cir. 1988), the Second Circuit reversed the district court and held that termination allowances must be included in gross income for federal income tax purposes because neither Section 797d(b) nor its legislative history evidenced a specific intent to exempt such allowances from income. The U.S. Tax Court has also reached the same result Martin v. Commissioner, 90 T.C. 1078, 90 T.C. No. 72 (1988).
This court agrees with the reasoning of the Second Circuit in Herbert. Congress need not specifically include any payment as income for it to be subject to taxation. The Internal Revenue Code defines gross income broadly as "all income from whatever source derived." 26 U.S.C § 61(a) (1982). The Supreme Court gives real effect to this broad definition, recognizing an "intention of Congress to tax all gains except those ...