Lawsuit awards not income
Last week, a federal appeals court ruled that certain types of court awards are NOT income…..so what? Well, the implications could be far reaching. The IRS has, like all bureaucracies with broad powers, assumed that they are pretty much in charge of determining what is “income.” The IRS has always pretty much taken the stance that if it shows up in your bank account, they get a piece of it. The court said, in effect, back off.
Murphy argued that just as compensation for physical injuries only makes one whole after a loss, the same is true of awards for emotional distress. In short, it is not income within the meaning of the 16th Amendment to the Constitution. The appeals court agreed, ruling that Murphy’s award for emotional distress is not income and therefore not taxable.
August 31st, 2006 at 10:48 am
“… compensation for … only makes one whole after a loss …”
You could insert many things after “for” in the above and still have a valid, correct, and true statement. For instance: “… compensation for time at work (i.e., wages) only makes one whole after a loss (of time) …”
This argument has been made before, that wages in exchange for labor is not “income”, but instead is an even trade without gain to either party. I happen to agree with it but am surprised to see any judge make it.
August 31st, 2006 at 5:57 pm
So maybe my boss can “award” me a prize of cash each week?