Paul L. Caron

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:

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» Taxable mental anguish from Don't Mess With Taxes
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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