FACTOID # 3: South Carolina has the highest rate of violent crimes and aggravated assaults per capita among US states.
 
 Home   Encyclopedia   Statistics   States A-Z   Flags   Maps   FAQ   About 
   
 
WHAT'S NEW
 

SEARCH ALL

FACTS & STATISTICS    Advanced view

Search encyclopedia, statistics and forums:

 

 

(* = Graphable)

 

 


Encyclopedia > Murphy v. IRS

Marrita Murphy and Daniel J. Leveille, Appellants v. Internal Revenue Service and United States of America, Appellees (commonly known as Murphy v. IRS, 460 F.3d 79, 2006-2 U.S. Tax Cas. (CCH) paragr. 50,476, 2006 WL 2411372 (D.C. Cir. Aug. 22, 2006) is a controversial tax case in which the District of Columbia Circuit Court of Appeals held that the taxation of emotional distress awards by the federal government is unconstitutional.


The Court issued its opinion, written by Chief Judge Ginsburg and joined by Judges Rogers and Brown, on August 22, 2006. The opinion struck down 26 U.S.C. § 104(a)(2) to the extent that the statute purports to categorize compensatory damages for emotional distress and loss of reputation as being includible in gross income for Federal income tax purposes. The Internal Revenue Code (or IRC) (more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes...


Marrita Murphy was represented by David K. Colapinto of the law firm Kohn, Kohn & Colapinto, who also handled her appeal before the D.C. Circuit. Murphy sued to recover income taxes that she paid on the compensatory damages for emotional distress and loss of reputation that she was awarded in an action against her former employer under whistle-blower statutes for reporting environmental hazards on her former employer’s property to state authorities. Murphy had claimed both physical and emotional-distress damages as a result of her former employer’s retaliation and mistreatment. David K. Colapinto is an attorney for Kohn, Kohn & Colapinto, a Washington, D.C. law firm specializing in employment law, which is one of the top firms representing whistleblowers in the United States. ... Kohn, Kohn & Colapinto, a Washington, D.C. law firm specializing in employment law, is one of the top firms representing whistleblowers in the United States. ...


In a prior administrative proceeding, Murphy had been awarded compensatory damages of $70,000, of which $45,000 was for “emotional distress or mental anguish” and $ 25,000 was for “injury to professional reputation.” Murphy reported the $70,000 award as part of her “gross income” and paid $20,665 in Federal income taxes based upon the award.


Section 104(a)(2) of the Internal Revenue Code excludes, from gross income, amounts "received . . . on account of personal physical injuries." The statute provides that for purposes of that exclusion, "emotional distress shall not be treated as a physical injury or physical sickness." Based on that provision, Murphy sought a refund of the full amount of tax, arguing that the award should be exempt from taxation both because the award was “in fact” to compensate for “physical personal injuries” and because the award was not “income” within the meaning of the Sixteenth Amendment. See 2006 WL 2411372 at *1-*2. The Internal Revenue Code (or IRC) (more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes...


Interpreting Section 104(a)(2), the D.C. Circuit first held that the damages at issue did not fall within the scope of the statute because the damages were not in fact to compensate for “personal physical injuries,” and thus could not be excluded from gross income under that provision. See id. at *4-*5.


The D.C. Circuit next analyzed whether Section 104(a)(2) is “constitutional,” relying upon language from Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 430-31 (1955), to the effect that, under the Sixteenth Amendment, Congress may “tax all gains” or “accessions to wealth.” Id. at *5. Murphy argued that her award was neither a gain nor an accession to wealth because it compensated her for nonphysical injuries, and was thus effectively a restoration of “human capital.” Id. Holding --- Court membership Case opinions Laws applied --- Commissioner v. ...


Recognizing that the Supreme Court has long held that a restoration of capital “[i]s not income,” and thus is not taxable, and that personal injury recoveries have traditionally been considered “nontaxable on the theory that they roughly correspond to a return of capital,” the D.C. Circuit accepted Murphy’s argument. Id. at *5-*6 (quoting, inter alia, O’Gilvie v. United States, 519 U.S. 79, 84 (1996), Glenshaw Glass, 348 U.S. at 432 n.8). The D.C. Circuit reasoned that Murphy’s award for emotional distress or loss of reputation is not taxable because her damages “were awarded to make Murphy emotionally and reputationally ‘whole’ and not to compensate her for lost wages or taxable earnings of any kind.” Id. at *8. The D.C. Circuit also explained that a 1918 opinion of the Attorney General stating that proceeds from an accident insurance policy were not taxable income and a 1922 IRS ruling that damages based on loss of reputation were not taxable income, both issued relatively near the Sixteenth Amendment’s ratification in 1913, support its ruling. See id. at *6, *9-*10. The D.C. Circuit thus concluded that “the framers of the Sixteenth Amendment would not have understood compensation for a personal injury – including a nonphysical injury – to be income.” Id. at *10.


It was the position of Murphy’s attorneys that her award constituted only monies that “made her whole” and, in effect, was a return of her “human capital.” After the decision was announced, lead attorney David K. Colapinto, who successfully argued the case before the Court, said of the appellee's position, “The government had the audacity to argue that non-wage compensatory damages for emotional distress and loss of reputation can be taxed as income because the economic value of human life is zero. The taxing of non-wage damages is highly destructive and punishes whistleblowers and other civil rights plaintiffs for prevailing in their cases. Hopefully, today’s ruling will stop this arcane and regressive policy.” David K. Colapinto is an attorney for Kohn, Kohn & Colapinto, a Washington, D.C. law firm specializing in employment law, which is one of the top firms representing whistleblowers in the United States. ...


The Murphy decision is mandatory precedent only in the District of Columbia. If this decision remains law, it could have a significant effect on litigants in employment, tort, and defamation suits, and in related areas of law where emotional distress and loss of reputation claims are possible. The Department of Justice has asked for a rehearing in the case. In law, a precedent or authority is a legal case establishing a principle or rule which a court may need to adopt when deciding subsequent cases with similar issues or facts. ... ...


External links


 
 

COMMENTARY     


Share your thoughts, questions and commentary here
Your name
Your comments

Want to know more?
Search encyclopedia, statistics and forums:

 


Press Releases |  Feeds | Contact
The Wikipedia article included on this page is licensed under the GFDL.
Images may be subject to relevant owners' copyright.
All other elements are (c) copyright NationMaster.com 2003-5. All Rights Reserved.
Usage implies agreement with terms, 1022, m