murphy - United States Court of Appeals FOR THE DISTRICT OF...

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United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT Argued February 24, 2006 Decided August 22, 2006 No. 05-5139 M ARRITA M URPHY AND D ANIEL J. L EVEILLE , A PPELLANTS v. I NTERNAL R EVENUE S ERVICE AND U NITED S TATES OF A MERICA , A PPELLEES Appeal from the United States District Court for the District of Columbia (No. 03cv02414) David K. Colapinto argued the cause for appellants. With him on the briefs was Stephen M. Kohn . Colin M. Dunham was on the brief for amicus curiae No Fear Coalition in support of appellant. John A. Nolet , Attorney, U.S. Department of Justice, argued the cause for appellees. With him on the brief were Kenneth L. Wainstein , U.S. Attorney, and Kenneth L. Greene , Attorney. Bridget M. Rowan , Attorney, entered an appearance.
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2 Before: G INSBURG , Chief Judge , and R OGERS and B ROWN , Circuit Judges . Opinion for the Court filed by Chief Judge G . G , Chief Judge : Marrita Murphy brought this suit to recover income taxes she paid on the compensatory damages for emotional distress and loss of reputation she was awarded in an adminstrative action she brought against her former employer. Murphy contends that under § 104(a)(2) of the Internal Revenue Code (IRC), 26 U.S.C. § 104(a)(2), her award should have been excluded from her gross income because it was compensation received “on account of personal physical injuries or physical sickness.” In the alternative, she maintains § 104(a)(2) is unconstitutional insofar as it fails to exclude from gross income revenue that is not “income” within the meaning of the Sixteenth Amendment to the Constitution of the United States. We hold, first, that Murphy’s compensation was not “received . .. on account of personal physical injuries” excludable from gross income under § 104(a)(2). We agree with the taxpayer, however, that § 104(a)(2) is unconstitutional as applied to her award because compensation for a non-physical personal injury is not income under the Sixteenth Amendment if, as here, it is unrelated to lost wages or earnings. I. Background In 1994 Marrita Leveille (now Murphy) filed a complaint with the Department of Labor alleging that her former employer, the New York Air National Guard (NYANG), in violation of various whistle-blower statutes, had “blacklisted” her and provided unfavorable references to potential employers after she
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3 had complained to state authorities of environmental hazards on a NYANG airbase. The Secretary of Labor determined the NYANG had unlawfully discriminated and retaliated against Murphy, ordered that any adverse employment references to the taxpayer in Office of Personnel Management files be withdrawn, and remanded her case to an Administrative Law Judge “for findings on compensatory damages.” On remand Murphy submitted evidence that she had suffered both mental and physical injuries as a result of the NYANG’s blacklisting her. A physician testified Murphy had sustained “somatic” and “emotional” injuries. One such injury was “bruxism,” or teeth grinding often associated with stress, which may cause permanent tooth damage.
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This note was uploaded on 04/16/2008 for the course LAW Tax taught by Professor Infanti during the Fall '06 term at Indiana.

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murphy - United States Court of Appeals FOR THE DISTRICT OF...

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