Murphy v. IRS, 05-5159 (D.C. Cir., July 3, 2007)

In a major about-face, a panel of the D.C. Circuit has reversed its own bombshell holding that a portion of the Internal Revenue Code is unconstitutional.

From my coverage of that earlier ruling:

In major tax news, the D.C. Circuit has invalidated the section of the Internal Revenue Code that requires taxes to be paid on many jury awards and settlements. Awards related to physical injuries are not considered “income,” but most other types of awards are.

In this appeal, plaintiff Marrita Murphy challenged the IRS’s decision to tax portions of her jury award in an employment discrimination case. Specifically, she argued that compensation for emotional distress and loss of reputation should not be considered taxable income. In a bombshell holding, the D.C. Circuit agrees. With a scholarly opinion focusing on what the framers of the Sixteenth Amendment intended, the Court concludes that § 104(a)(2) of the Code is unconstitutionally broad because it goes far beyond the government’s constitutional authority to tax income.

In concluding that the statute is constitutional after all, the panel holds that Murphy’s award was “gross income” as opposed to compensation for physical injury, and the tax is constitutional because it is an excise tax that is imposed uniformly throughout the United States.

As with the panel’s earlier effort, Chief Judge Ginsburg writes the decision, which is joined by Judges Brown and Rogers.

Posted Tue, 03 Jul 2007 07:17:27 and filed under Tax, Decision of the Day. You can leave a response, or trackback from your own site.