Attorneys for Ms. Murphy on Thursday filed a reply brief in response to the Government’s brief in opposition to the petition for certiorari in Murphy v. IRS, 493 F.3d 170 (D.C. Cir. 7/3/07):
The court of appeals cannot, on the one hand, decide that Murphy’s compensatory damages are taxable income under Section 61(a), while, on the other hand, avoid determining whether those damages are "an accession to wealth" under Glenshaw Glass. In either event, the D.C. Circuit’s decision conflicts with Glenshaw Glass and the long line of authorities cited in the Petition. Review is warranted to resolve this conflict in accordance with the "accessions to wealth" test….
Even in the absence of any conflicting decisions in the circuits, the unusual importance of the underlying issues is grounds for granting the writ. Commentators and practitioners alike have long struggled with the application of Section 104(a)(2) and given the number of compensatory damages awards, "the taxation of damages is an important topic." The D.C. Circuit’s second decision in this case has not quelled the criticism, adequately corrected the problems or resolved the uncertainty resulting from the 1996 amendment. …
Unquestionably, the court of appeals decided an important question of federal law in a manner that calls for this Court’s review. The taxing of personal injury damages in light of the 1996 amendments to Section 104(a)(2) affects not only the tax bar, but impacts employment law, torts, whistleblower law, and civil rights. Review is needed to decide whether "make whole" personal injury damages are not income and not taxable.
(Hat Tip: Marshall Chriswell.) Prior TaxProf coverage:
