A federal appeals court decision that cited the Constitution to bar the government from taxing some types of damage awards may encourage challenges to other sections of U.S. tax law, legal experts said....
Tax law experts said the ruling will encourage legal challenges to other parts of the tax code defining what income can be taxed. They also said the government is likely to appeal the decision to the Supreme Court. "It's certainly going to launch a thousand constitutionality arguments that people would have thought laughable before,'" said Yale University law school professor Michael Graetz, a former tax official in President George H.W. Bush's administration.
Former IRS Commissioner Donald C. Alexander, now a partner at the law firm Akin, Gump, Strauss, Hauer & Feld LLC in Washington, said the case will likely be appealed to the Supreme Court. `I think it will be appealed, the Supreme Court will hear it, and the Supreme Court will reverse it,'' Alexander said. In the meantime, tax experts predict challenges to the taxation of other money including some insurance proceeds, gambling winnings and windfalls such as found money.
"It is difficult to overstate the importance and potential harm of this decision,'' said Paul Caron, a tax professor at the University of Cincinnati College of Law. Graetz said tax lawyers will have fewer concerns that their constitutionality claims will be deemed frivolous because most thought the issue decided in the case was frivolous before yesterday's ruling. ``Now it's hard to know what's frivolous and what's serious,'' he said.