Tax on emotional damages revisited: DC Cir. vacates Murphy.

• Author: O'Driscoll, David
• Position: Tax Trends: Recent Cases and Rulings

In Murphy, DC Cir., 8/22/06, the DC Circuit ruled that Sec. 104(a)(2), dealing with the taxation of nonphysical injury awards, was unconstitutional, because it failed to exclude amounts that were not income under the 16th Amendment; see Winkelman and Fonaro, Tax Clinic, "Tax on Emotional Damages Held Unconstitutional: How to Protect Clients in the Short Term," TTA, December 2006, p. 700. On Dec. 22, 2006, the court vacated its previous decision and scheduled oral arguments.

While there is no way to tell how the court will ultimately rule, the issues involving the statute of...