Statute Which Subjects an Award for Emotional Distress/Injury to Personal Reputation to Taxation Found Unconstitutional

On August 22, 2006, the United States Court of Appeals for the District of Columbia Circuit, in Marrita Murphy and Daniel J. Leveille v. Internal Revenue Service and United States of America, held that Section 104(a)(2) of the Internal Revenue Code was unconstitutional insofar as it permitted the taxation of compensation for a personal injury and that was unrelated to lost wages or earnings. In so holding, the court reversed the decision of the United States District Court for the District of Columbia granting summary judgment for the Government and the Internal Revenue Service and remanded the case back to the District Court to enter an order and judgment instructing the Government to refund the taxes the taxpayer paid on her award plus applicable interest.