Paul L. Caron

Monday, October 30, 2006

NLJ on Murphy

As the D.C. Circuit weighs whether to grant the Government's petition for rehearing en banc in Murphy v. United States, 460 F.3d 79 (D.C. Cir. 8/22/06), this week's National Law Journal has an article on the case:  Full Court May Weigh Taxation of Damages, by Marcia Coyle:

The Murphy decision, stemming from a whistleblower lawsuit, ignited debate and criticism among tax, employment and constitutional scholars and litigators whose descriptions of the decision ranged from "silly" and "reckless" to "momentous" and "epochal." ...

Some critics, such as tax scholar Allan Samansky of Ohio State University Michael E. Moritz College of Law, contend that the panel got the law wrong: It should have analyzed Section 61, not Section 104, an exclusion provision. And, Samansky argues, the panel should never have resorted to an originalist interpretation of the 16th Amendment. "I would say it's an outrageous opinion," said Samansky. "There's an old case-Eisner v. Macomber, 252 U.S. 189 (1920)-where the Supreme Court used the 16th Amendment to say a tax was unconstitutional because what was being taxed was not income. "But since then, no court has decided it's up to the courts to use the 16th Amendment to make judgments about what is income. Those are the type of issues that Congress decides. This second-guessing of Congress will undoubtedly make the law more complicated, uncertain and just messy with no benefit." If the decision stands, it will encourage more constitutional attacks in tax litigation, he said. The full D.C. Circuit, he added, should hear the case and reverse.

Saying he is within a "distinct minority" of tax professors, Erik Jensen of Case Western Reserve University School of Law, a 16th Amendment scholar, said the panel's decision is defensible "if you think original intention should matter" in interpreting that amendment. The ratifiers would think you were "crazy" if asked whether this type of recovery could be included in the income tax base, he said. "Having said that, the D.C. Circuit did get a lot of things wrong in the opinion," he said, blaming the government for a weak brief and argument. "I think the government had no idea this result was a possibility, but it has raised all the points it should have raised in its petition for rehearing." Review by the full circuit court or the Supreme Court, but not a reversal, "probably would be good for the state of the law," said Jensen.

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