Supreme Court Denies Certiorari in Murphy

As expected (see here), the Supreme Court today denied certiorari in Murphy v. IRS, 493 F.3d 170 (D.C. Cir. 7/3/07).  Ms. Murphy's counsel issued this press release, claiming that the D.C. Circuit panel agreed to rehear its initial decision because it was "under pressure from the Bush Administration," and lambasting the denial of certiorari:

The DC Circuit's decision was contradictory and wrong. It will have a tragic impact on thousands of whistleblowers and victims of discrimination. We are not surprised though, that the Supreme Court declined to hear the case, as there was not a traditional "split in the circuits," as the DC Circuit was the first court to take this issue on. Given the DC Circuit's difficulty in dealing with this issue, I expect that it will be taken up in other courts across the country.

It is unfair and unconstitutional to tax victims of discrimination and retaliation when the awards were simply compensation to make them whole again. The money is to restore a loss for personal injury; it is not income.

Unfortunately, as a result of the Court's decision not to hear the Murphy case, whistleblowers and other civil rights victims whose make whole compensatory damages awards are taxed will have to continue to fight the IRS through the courts. The only alternative to continued litigation is for Congress to change the tax code.

For a penetrating analysis of the continuing importance of Murphy, see here and here.