Murphy v. United States

493 F.3d 170 (D.C. Cir.2007)

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Nature of the Case

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Facts

In 1994, P filed a complaint with the Department of Labor alleging that her former employer, the New York Air National Guard (NYANG), in violation of various whistle-blower statutes, had 'blacklisted' her and provided unfavorable references to potential employers after she had complained to state authorities of environmental hazards on a NYANG airbase. The Secretary of Labor determined the NYANG had unlawfully discriminated and retaliated against P, ordered that any adverse references to the taxpayer in the files of the Office of Personnel Management be withdrawn, and remanded her case to an Administrative Law Judge 'for findings on compensatory damages.' P presented evidence that she had sustained both 'somatic' and 'emotional' injuries, basing his conclusion in part upon medical and dental records showing Murphy had 'bruxism,' or teeth grinding often associated with stress, which may cause permanent tooth damage. P also suffered 'anxiety attacks, shortness of breath, and dizziness,' and 'could not concentrate, stopped talking to friends, and no longer enjoyed 'anything in life,'' the ALJ recommended compensatory damages totaling $70,000, of which $ 45,000 was for 'past and future emotional distress,' and $25,000 was for 'injury to P's vocational reputation' from having been blacklisted. None of the award was for lost wages or diminished earning capacity. P included the $70,000 award in her 'gross income' pursuant to §61 and paid $20,665 in taxes on the award. P filed an amended return for a refund of the $20,665 based upon § 104(a)(2) ('gross income does not include … damages … received … on account of personal physical injuries or physical sickness.') D denied her request for a refund. P

brought this suit to recover income taxes she paid on the compensatory damages for emotional distress and loss of reputation. P claims her award is not part of her gross income as defined by § 61. P asserted taxing her award was unconstitutional because the award was not 'income' within the meaning of the Sixteenth Amendment. D moved to dismiss. The court denied the motion in that P had a right to bring an action for a declaratory judgment. The court rejected all of P’s claims, and P appealed. The appeals court held that the award was not exempt under § 104(a)(2), but it was also not income under the Sixteenth Amendment. It reversed. D petitioned for a rehearing en banc.