Supreme Court Won't Hear Taxable Damages Case

A whistleblower, Marrita Murphy, was awarded $70,000 for emotional or mental anguish for injury to her professional reputation in a suit against her former employer. She maintained that this money was not taxable to her. She argued that these damages were not gross income and taxes on the damages violated the Sixteenth Amendment to the U.S. Constitution.

Initially, a federal appellate court had agreed with her and ruled that it was unconstitutional for the government to tax nonphysical compensatory damages, but this decision was later vacated and, ultimately, reversed. It was concluded that the plain language of the law, which taxes damages other than those received on account of personal physical injury or illness, applies in this case and was not unconstitutional.

The U.S. Supreme Court has denied certiorari, which means it will not hear the case. The issue may be revisited in the future if another federal appellate court hands down a decision agreeing with Murphy's argument; the court could then wish to consider the matter.

Source: Marrita Murphy, S.Ct., cert. denied, 4/21/08