Murphy Files Response to Government's Petition for Rehearing En Banc

The taxpayer has filed its response to the Government's petition for rehearing en banc in Murphy v. United States, 460 F.3d 79 (D.C. Cir. 8/22/06).  Here is the Conclusion:

For the foregoing reasons, Appellees’ petition for rehearing en banc should be denied. The Government’s petition does not justify disturbing a well-reasoned and supported panel decision and does not provide any support that an unspecified “parade of horribles” would result. Indeed, not all tax experts agree with the views cited by Appellees. For over 78 years, the IRS did not tax non-physical "make whole" awards for emotional distress and loss of reputation and there was no "damage" to the nation or the administration of collecting revenues. Indeed, the panel clarifies that personal injury damages are not taxable as income, just as the courts and the government itself so stated for more than seven decades following the enactment of the 16th Amendment and the modem tax code, and the panel decision is in line with one of the most basic tax concepts, that restoration of capital or a loss is not a gain, and is not income. Unquestionably, this is an overwhelmingly positive development that is welcomed by both sides of the employment bar (a remarkable development in and of itself) and resolves the uncertainties about whether personal injury damages are taxable in a manner consistent with over 80 years of case law and other authority.