Last week attorneys for whistleblower Marrita Murphy asked a US court to reconsider
its decision that her award for emotional distress should be taxable, itself
a reversal of an earlier decision in her favour.
Ms Murphy's attorneys David Colapinto and Stephen Kohn have asked the full
US Court of Appeals for the District of Columbia Circuit to reconsider a July
decision by a three-judge panel that held that the IRS can tax damage awards
based solely on compensating victims who suffer personal injuries, claiming
that Congress intended to amend the tax code “by implication” to
tax personal injury damages under its authority to create an excise tax on people
who use the courts to vindicate their rights. But a year earlier, the same panel
in the same case held that such taxes were unconstitutional, as compensation
for a documented "loss" was not "income" subject to the
tax code.
Marrita Murphy had received $70,000 compensation after having filed a complaint
with the Labor Department against her former employer. She paid taxes on the
award but later filed an amended return asking for a refund, which the IRS rejected.
"The Court's reversal stands reality on its head," said Mr Colapinto.
“This case marks the first time that a court has interpreted the gross
‘income’ statute, 26 U.S.C. § 61(a), to be amended ‘by
implication’ to create a tax not expressly enacted by Congress. Additionally,
this is the first time that any court has construed the tax code to imply an
“excise tax” on the ‘privilege’ of utilizing the ‘legal
system’ to vindicate a federal statutory right."
"When whistleblowers suffer retaliation, they do not 'sell' their mental
health. If people are injured in a car accident, they do not 'sell' their arms
and legs. These are real human losses, and compensation to restore that human
loss was never intended to be 'income' under our Constitution or the tax code,"
Colapinto said.
Stephen M. Kohn, the President of the National Whistleblower Center and co-counsel
for Ms. Murphy, stated: "This decision is a terrible setback for all victims
of civil rights abuses. Congress did not pass a special tax demanding payment
from people who use the legal system to prevent retaliation against whistleblowers.
It was error for the Court to imply such a tax. This decision threatens fundamental
human rights, including access to the courts."
USA-TAX-NEWS.COM 
