The U.S. Court of Appeals For the D.C. Circuit has denied Marrita Murphy’s request for a rehearing by the full court of the second ruling (in which the panel of judges reversed itself) in the case in which the court held that her compensatory damage award for emotional distress is not excludible from gross income under I.R.C. §104(a)(2), and that taxing the award is constitutional. The U.S. Supreme Court, on April 21, 2008, declined to hear the case. Murphy v. Internal Revenue Service, 493 F.3d 170 (D.C. Cir. 2007), vac’g, 2006 U.S. App. LEXIS 32293 (D.C. Cir. Dec. 22, 2006), pet. for reh’g den., 2007 U.S. App. LEXIS 22173 (D.C. Cir. Sept. 14, 2007), cert. den., 2008 U.S. LEXIS 3544 (U.S. Apr. 21, 2008).
Note: On October 11, 2007, the U.S. Court of Appeals for the Ninth Circuit filed a substitute opinion in a case in which it had ruled that installment payments received as settlement for wrongful termination were includible income to the extent they were received after Aug. 20, 1996 (the effective date to the amendment to I.R.C. §104(a). The one installment received before that date was not includible in gross income because the payment was for non-physical injuries.
The court did not address whether amended I.R.C. §104(a) (2) violated the Sixteenth Amendment because the taxpayer failed to raise the issue. Polone v. Commr., 479 F.3d 1019 (9th Cir. 2007), sub. ap. at 2007 U.S. App. LEXIS 23804 (9th Cir. Oct. 11, 2007).