Paul L. Caron
Dean





Wednesday, July 4, 2007

D.C. Circuit Panel Reverses Itself in Murphy, Upholds Constitutionality of Taxation of Award for Nonphysical Injury

The D.C. Circuit panel that originally decided Murphy v. IRS, 460 F.3d 79 (D.C. Cir. 8/22/06), holding that § 104(a)(2) is unconstitutional under the 16th Amendment as applied to a recovery for a non-physical personal injury unrelated to lost wages or earnings, reversed course yesterday on rehearing (Murphy v. IRS, No. 03cv02414 (7/3/07)) and upheld the taxation of Mrs. Murphy's compensatory personal injury award:

[W]e conclude (1) Murphy’s compensatory award was not received on account of personal physical injuries, and therefore is not exempt from taxation pursuant to § 104(a)(2) of the IRC; (2) the award is part of her “gross income,” as defined by § 61 of the IRC; and (3) the tax upon the award is an excise and not a direct tax subject to the apportionment requirement of Article I, Section 9 of the Constitution. The tax is uniform throughout the United States and therefore passes constitutional muster. The judgment of the district court is accordingly Affirmed.

Press and blogosphere commentary:

https://taxprof.typepad.com/taxprof_blog/2007/07/dc-circuit-pane.html

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Listed below are links to weblogs that reference D.C. Circuit Panel Reverses Itself in Murphy, Upholds Constitutionality of Taxation of Award for Nonphysical Injury:

» MORE ON 'MURPHY' from Roth & Company, P.C.
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When I see that phrase, I just know that a whopper of an error is about to be seen. Well, those words weren't used, but the DC Circuit realized that they did just that--made a whopper of a mistake. On Tuesday, they reversed themselves in the Murph... [Read More]

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» Taxable mental anguish from Don't Mess With Taxes
Last August, a D.C. federal appellate panel ruled that the IRS cannot collect taxes on money awarded as compensation for emotional distress and other intangible injuries. In the original ruling, Marritta Murphy, was awarded damages for emotional distre... [Read More]

Tracked on Jul 8, 2007 10:49:40 PM

Comments

So does Murphy report her income as capital gain, since she had a "gain" on her "human capital" per the IRS briefs and the opinion?

Posted by: CA CPA | Sep 6, 2007 12:37:24 PM