 |
|
|
CFC # 10222 |
|
||
|
|
||
|
|
|
||
|
|
|
|
|
 |
|
|||||||||
|
|
|
|
|||
|
Support Tax Justice for Whistleblowers Washington, D.C. April 24, 2008. In 1996, Congress - in a middle-of-the-night backroom deal - reversed nearly eighty years of tax law. They stripped whistleblowers (along with all other victims of civil rights violations) of their right to be "made whole" after suffering emotional distress or loss of reputation. Attorneys for the National Whistleblower Center, in Murphy v. IRS , fought the constitutionality of this law all the way to the Supreme Court. This week, the Supreme Court refused to hear the case, so now -- 12 years later -- we must turn back to Congress and ask them to pass the Civil Rights Tax Relief Act of 2007. Take Action for Victims! Click Here to Email your Representatives! This 1996 law allows the IRS to tax victims who are being compensated for mental, emotional, and/or reputational damages. This is especially troublesome considering that the IRS is not allowed to tax compensation for physical injury. Congress' mindset in this instance was mean-spirited, cruel, and defied years of medical research, which shows unequivocally that mental distress is every bit as harmful as physical injury. Ever since this amendment was passed, according to the IRS, if a whistleblower suffers a heart attack (which some have) as a result of the stress from a wrongful discharge - their court awarded compensation is taxable because the IRS considers it to be an emotional, not a physical injury. President Clinton realized the nefarious nature of the amendment when he signed the 1996 bill (a minimum wage increase), saying: "Such damages are paid to compensate for injury, whether physical or not, and are designed to make victims whole, not to enrich them. These damages should not be considered a source of taxable income." Take Action for Victims! Click Here to Email your Representatives! We are asking for your help to see that Congress passes the Civil Rights Tax Relief Act of 2007 this term! The law, which was introduced in both the House (HR.1540) and Senate (S.1689) last year, would in essence repeal the 1996 amendment that destroyed the ability of whistleblowers to be made "whole." U.S. Supreme Court Refuses to Hear Murphy v. IRS Advocates To Continue Pressing for Changes in Civil Rights Tax Law Washington, D.C. April 21, 2008. -- The United States Supreme Court announced its decision not to grant certiorari in the case of Murphy v. IRS. The order, posted on the Court's website this morning, means that the IRS can continue to tax non-pecuniary compensatory damages awarded to victims of whistleblower retaliation and other civil rights violations. These damage awards, which are intended to make the victim "whole" again, include payments for loss of reputation and emotional distress. The case was brought by Marrita Murphy, an environmental whistleblower who won her case before Department of Labor, and was awarded compensatory damages to vindicate her rights under six federal environmental whistleblower statutes. Murphy filed suit when the IRS demanded that she pay taxes on the "make-whole" award as if it were income. After having her case dismissed, Murphy filed an appeal. After full briefing and oral argument, the Appeals court initially held that Murphy's award was not income and the tax on her damages violated the U.S. Constitution. Then, under pressure from the Bush Administration, the judges decided to rehear the case. In this ruling, Murphy II, the D.C. Circuit reversed its own previous decision, declaring that non-physical compensatory damages are taxable as gross income. National Whistleblower Center General Counsel David K Colapinto, who represents Ms. Murphy, released the following statements regarding the Court's decision: "The DC Circuit's decision was contradictory and wrong. It will have a tragic impact on thousands of whistleblowers and victims of discrimination. We are not surprised though, that the Supreme Court declined to hear the case, as there was not a traditional "split in the circuits," as the DC Circuit was the first court to take this issue on. Given the DC Circuit's difficulty in dealing with this issue, I expect that it will be taken up in other courts across the country." "It is unfair and unconstitutional to tax victims of discrimination and retaliation when the awards were simply compensation to make them whole again. The money is to restore a loss for personal injury; it is not income." Unfortunately, as a result of the Court's decision not to hear the Murphy case, whistleblowers and other civil rights victims whose make whole compensatory damages awards are taxed will have to continue to fight the IRS through the courts. The only alternative to continued litigation is for Congress to change the tax code. The CRTRA was introduced in the House by Representative John Lewis (D-GA), who was joined by a bipartisan group of original CRTRA cosponsors, including Representatives Deborah Pryce (R-OH), Sander Levin (D-MI), Jim Ramstad (R-MN), Xavier Becerra (D-CA), and Phil English (R-PA). The Senate companion bill was introduced by Senators Jeff Bingaman (D-NM) and Susan Collins (R-ME). The CRTRA has broad bi-partisan support. It is supported by employer and employee advocacy groups alike because both business and employee organizations recognize that taxing non-economic make whole compensatory damages makes settlement more difficult and results in protracted litigation in employment disputes. For more information:
Reply Brief Filed in Whistleblower Tax Case, Murphy v. IRS Washington, D.C. March 27, 2008. Attorneys working with the National Whistleblower Center have filed a reply brief in response to the Solicitor General’s brief regarding whether certiorari should be granted in a key Whistleblower Civil Rights tax case that was filed with the Supreme Court. The case is Murphy v. IRS, No. 07-802 (Supreme Court). Read more about this on the Whistleblower Protection Blog. Major Civil Rights Tax Case Filed With Supreme Court December 13, 2007, Washington, D.C. – Today, The U.S. Supreme Court was asked to hear a key civil rights tax appeal which could affect thousands of past and future victims of civil rights offenses and whistleblower retaliation. In Murphy v. IRS, the U.S. Court of Appeals for the District of Columbia Circuit reversed its own original ruling in deciding that court awards for damages such as emotional distress and loss of reputation are taxable as income. The case was brought by Marrita Murphy, an environmental whistleblower who won her case before Department of Labor, and was awarded compensatory damages to vindicate her rights under six federal environmental whistleblower statutes. Murphy filed suit when the IRS demanded that she pay taxes on the “make-whole” award as if it were income. After having her case dismissed, Murphy filed an appeal. After full briefing and oral argument, the Appeals court initially held that Murphy’s award was not income and the tax on her damages violated the U.S. Constitution. Then, under pressure from the Bush Administration, the judges decided to rehear the case. In this ruling, Murphy II, the D.C. Circuit reversed its own previous decision, declaring that non-physical compensatory damages are taxable as gross income. For the first time the issue of whether compensatory damages for non-physical injuries are taxable income is squarely before the Supreme Court. This is a major issue impacting all cases in which any person obtains compensatory damages for a mental distress or illness, or for physical problems resulting from or associated with emotional distress. David K. Colapinto, General Counsel for the National Whistleblower Center and attorney for Marrita Murphy said he is requesting that the Supreme Court review the issue because "The D.C. Circuit’s reversal stands reality on its head." Colapinto went on to say that, "The D.C. Circuit’s decision in the Murphy case 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." “However, Congress did not pass a special tax demanding payment from people who use the legal system to prevent retaliation against whistleblowers or to vindicate civil rights. It was error for the D.C. Circuit to imply such a tax," he added. Full Court Review Requested In Key Tax Case
Reversal of setback for whistleblowers and civil rights victims urged. Washington D.C. – August 17, 2007. The full U.S. Court of Appeals for the District of Columbia Circuit has been asked to reconsider last month’s decision by a three-judge panel that reversed itself on a key civil rights tax case. On July 3, 2007, the panel held that the IRS can tax damage awards based solely on compensating victims who suffer personal injuries. However, on August 22, 2006, 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. In a major reversal, the three-judge panel, (Chief Judge Douglas H. Ginsburg, and Judges Judith W. Rogers and Janice Rogers Brown), held that make whole compensation to restore personal injuries losses are taxable. The case arose as a result of the Department of Labor ruling in the whistleblower case of Marrita Murphy. In that case, the Labor Department held that Ms. Murphy suffered substantial damages to her health and reputation, and awarded her $70,000 in compensatory damages strictly related to her losses. The IRS taxed Ms. Murphy's damages and she asked for a refund of the tax on the grounds that her damages were not income. In an August 22, 2006 decision, Judge Ginsburg, writing for the 3-judge panel, agreed with Ms. Murphy, and found that compensation for actual documented personal injury losses were not subject to an income tax. The IRS forcibly argued that decision was wrong and the panel agreed to vacate its original decision and rehear the case to consider issues that were never timely raised on appeal by the IRS. Rather than overrule its prior decision (Murphy v. IRS, Aug. 22, 2006) holding that taxing Murphy’s damages was unconstitutional, the panel simply held 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. No court in the history of the United States has ever upheld such an implied tax. In a remarkable ruling, the Court held that compensation for damages for emotional distress suffered by a whistleblower were not paid to make the employee “whole,” but were instead paid as part of a “forced sale” which Congress could tax under its excise tax authority. The Court reasoned: Murphy's situation seems akin to an involuntary conversion of assets; she was forced to surrender some part of her mental health and reputation in return for monetary damages. Murphy v. IRS (July 3, 2007). Attorneys for Marrita Murphy have asked the full U.S. Court of Appeals for the D.C. Circuit to reconsider the panel’s holding because it conflicts with Supreme Court and other legal precedent, and it raises questions of exceptional importance. "The Court's reversal stands reality on its head," said David K. Colapinto, who argued on behalf of Ms. Murphy. “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,” Colapinto added. "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." Court Reverses Itself on Key Tax Case New decision setback for whistleblowers and civil rights victims. Washington D.C. - July 3, 2007. The U.S. Court of Appeals for the District of Columbia Circuit reversed itself on a key civil rights tax case and held that the IRS can tax damage awards based solely on compensating victims who suffer emotional injuries. On August 22, 2006 the same court held that such taxes were unconstitutional, as compensation for a documented "loss" was not "income" subject to the tax code. In a major reversal, the Court held that compensation for personal injuries are taxable. The case arose as a result of the Department of Labor ruling in the whistleblower case of Marrita Murphy. In that case, the Labor Department held that Ms. Murphy suffered substantial damages to her health and reputation, and awarded her $70,000 in compensatory damages strictly related to her losses. The IRS taxed Ms. Murphy's damages and she asked for a refund of the tax on the grounds that her damages were not income. In an August 22, 2006 decision, the U.S. Court of Appeals for the D.C. Circuit agreed with Ms. Murphy, and found that compensation limited to making a human being whole for actual documented losses to physical or mental health were not subject to an income tax. The IRS forcibly appealed that decision and the Appeals Court agreed to vacate its original decision and hear reargument on the case. On rehearing, the IRS urged the Court to treat damages to people differently from damages to property. The IRS contended that compensation awarded to a person for the loss of an arm or a leg was not payment to make a person "whole," but was payment obtained as part of a "forced sale." In other words, if a person suffered a mental breakdown after witnessing her/his child being murdered, payment for that mental breakdown was taxable - as the victim (according to the IRS) simply was "forced" to sell his or her mental health, and obtained "income" based on the forced sale theory. In a remarkable reversal of its prior decision, the Court adopted this baseless argument. The Court held as follows: Murphy's situation seems akin to an involuntary conversion of assets; she was forced to surrender some part of her mental health and reputation in return for monetary damages. Murphy v. IRS, p. 2. "The Court's reversal stands reality on its head," said David K. Colapinto, who argued on behalf of Ms. Murphy. "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." 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. It permits Congress to enact retaliatory taxes, stripping people from the Constitutional protections afforded property. Damages to whistleblowers are not part of a business transaction - forced or otherwise. They are part of harm caused by illegal conduct. This decision threatens fundamental human rights."
Tax Experts Praise Murphy Decision as “Momentous” and “Epochal”
Since 1996 the National Whistleblower Center has vigorously opposed the taxation of damages designed strictly to make whistleblower “whole” for the damages they suffer. Before the Court of Appeals, Marrita Murphy was represented by the NWC’s General Counsel for Forensic Justice and the Chairperson of the NWC’s Board of Directors. Whistleblower Wins Major Tax Ruling IRS taxing of non-wage damages is “unconstitutional”
The sole issue, decided by the court, was whether non-wage damages for injuries to emotional distress and damage to reputation were taxable as income. The case did not involve the taxing of any wages or other income. Since 1996, when Congress, for the first time, changed the law to tax such emotional distress and reputational harm damages awarded in civil suits, hundreds of whistleblowers and other victims of discrimination have been forced to pay taxes on "make whole" remedies - regardless of the extent of the harm. In today’s opinion the court ruled as follows: 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 administrative 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. Murphy v. IRS, Slip Op. at 2 (emphasis added). The court also held: Murphy's compensatory award in particular was not received “in lieu of” something normally taxed as income; nor is it within the meaning of the term “incomes” as used in the Sixteenth Amendment. Therefore, insofar as § 104(a)(2) permits the taxation of compensation for a personal injury, which compensation is unrelated to lost wages or earnings, that provision is unconstitutional. Murphy v. IRS, Slip Op. at 24 (emphasis added). David K. Colapinto, who successfully argued the case, said, “The government had the audacity to argue that non-wage compensatory damages for emotional distress and loss of reputation can be taxed as income because the economic value of human life is zero. The taxing of non-wage damages is highly destructive and punishes whistleblowers and other civil rights plaintiffs for prevailing in their cases. Hopefully, today’s ruling will stop this arcane and regressive policy.” Stephen M. Kohn, the Chairperson of the National Whistleblower Center, also said the following: For over four years the Center has supported Ms. Murphy's challenge to the cruel and discriminatory practices of the IRS. By taxing their "make whole" remedies, the IRS ensured that no whistleblower could ever receive justice. Instead of limiting tax liability of prevailing whistleblowers to wage claims, the IRS - with wanton disregard to the U.S. Constitution - imposed taxes on whistleblowers for their non-wage, emotional distress and reputational harm damages. These actions resulted in numerous injustices and undermined Congress' intent to ensure that whistleblowers - and other victims of intentional discrimination, were made whole. D.C. Circuit Strikes Down Tax On Emotional Damages D.C. Circuit Finds Tax on Emotional Damages Awards Unconstitutional Court Ruling in Damages Case Deals Big Setback to the IRS
|
In a recent court victory, whistleblower Marrita Murphy successfully challenged the constitutionality of taxing compensatory damages in civil rights/whistleblower cases. In August, 2006, a unanimous panel of the U.S. Court of Appeals for the District of Columbia Circuit ruled in favor of Ms. Murphy and declared unconstitutional a special tax Congress had passed in 1996, which targeted civil rights victims who received compensation for emotional distress damages. That decision, 
|
|
|
©1997-2007 National Whistleblower Center & NWLDEF P.O. Box 3768, Washington, DC 20027 |
|
|
| [Murphy v. IRS] |