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
National Whistleblowers Center General Counsel David K Colapinto, who
represents Ms. Murphy, released the following statements regarding the
"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
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.
Currently pending before Congress is the Civil Rights Tax Relief Act of
2007 ("CRTRA"), H.R. 1540, which would end unfair taxation of
noneconomic damages received by those who have suffered unlawful
discrimination in the workplace or other violations of their employment
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.
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