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 Whistleblowers 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.
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.”
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.”