Murphy's Case: Murphy Vs. IRS Case

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Murray reported his employer to the Environmental Protection Agency claiming his employer had been illegally dumping chemicals into a river. Murray’s employer fired him and intentionally attempted to prevent Murray from attaining another job. Murray retaliated by suing his former employer. Murray claimed that his reputation was damaged and he won the lawsuit. Murray received an award for “damages to his personal and professional reputation and for his mental suffering.” Murray makes an argument stating this award is a recovery of his human capital, and a recovery of capital is not income. Will this amount be taxable? I have decided that Murray’s award is taxable. The amount he received is not on account for personal physical injuries or physical sickness. Therefore, recovering his human capital is still taxable by the Internal Revenue Service. …show more content…

IRS case. Murphy claimed that she should not be taxed on compensatory damages from emotional distress and loss of reputation. The court rejected all arguments Murphy made. § 104(a)(2) the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness. The amount Murray received is not classified as an amount received for personal physical injuries. Second, Murphy claims taxing her on her award is in violation of Article 1, Section 9 of the constitution. On July 3rd, 2007 the courts concluded the amount is taxable under Article 1, Section 8 of the constitution. Third, Murphy claims her award is not defined as her income under §61 of the IRC. §61 of the IRC “gross income means all income from whatever source derived.” The courts interpreted the section broadly to extend to all economic gains not otherwise exempted. Compensatory damages are not exempt and therefore is

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