Katie Pratt (Loyola-L.A.; Google Scholar) presents Taxing Reparations at Northwestern today as part of its Advanced Topics in Taxation Colloquium hosted by Ari Glogower:

This Article explores the tax consequences of receiving reparations, including recovery of wrongfully taken property and receipt of money or nonmonetary benefits as reparations. The tax treatment of reparations can advance or undermine the remedial goals of reparations, yet reparation programs often ignore tax issues. Historical and contemporary reparation examples illustrate the significance of taxation for reparation programs. This Article analyzes the tax consequences of reparation examples under existing income tax rules and rationales and normative frameworks for both income tax rules and reparation programs. Parts I and II provide background and normative frameworks for reparations and the federal income tax. Part III introduces substantive and procedural income tax rules that are relevant in the context of reparations. These tax rules include the statutory exclusion for payments received on account of personal physical injury and an administrative doctrine known as the General Welfare Doctrine (GWD). Part IV analyzes the tax consequences of the receipt of various types of reparation remedies, including: payments for wrongful physical injury or death; payments for wrongful internment and incarceration; payments for forced labor; payments to survivors of state-sponsored involuntary sterilization; payments for wrongfully taken property; recovery of wrongfully taken property; and cancellation of indebtedness. The analysis demonstrates how application of existing tax law sometimes furthers – but often undermines – the remedial goals of reparations. 

The examples also show that ignoring the tax consequences of reparation remedies has in some cases perpetuated the injuries the remedies were designed to redress. Part V proposes a new statutory income tax exclusion for reparations, which would combine features of: legislative exclusions for Holocaust recoveries and Japanese American internment recoveries; the GWD; and the Internal Revenue Code exclusions for reparations received by Native Americans and wrongfully incarcerated exonerees. In addition, Part V proposes an exclusion for debt discharge arising in the context of redressing systemic discrimination against members of subordinated groups. Also, Part V applies the proposals to the examples discussed in Part IV, highlighting the changes to the tax consequences in the Bruce’s Beach example and the Pigford example. Part VI concludes.