Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-05-05139/USCOURTS-caDC-05-05139-1/pdf.json

Nature of Suit Code: 870
Nature of Suit: Tax Suits
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 23, 2007 Decided July 3, 2007

No. 05-5139

MARRITA MURPHY AND

DANIEL J. LEVEILLE,

APPELLANTS

v.

INTERNAL REVENUE SERVICE AND

UNITED STATES OF AMERICA,

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(No. 03cv02414)

On Rehearing

David K. Colapinto argued the cause for appellants. With

him on the briefs were Stephen M. Kohn and Michael D. Kohn.

Richard R. Renner was on the brief for amici curiae No

FEAR Coalition, et al. in support of appellants.

Gilbert S. Rothenberg, Attorney, U.S. Department of

Justice, argued the cause for appellees. With him on the brief

were Jeffrey A. Taylor, U.S. Attorney, Richard T. Morrison,

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Deputy Assistant Attorney General, and Kenneth L. Greene and

Francesca U. Tamami, Attorneys. Bridget M. Rowan, Attorney,

entered an appearance.

Before: GINSBURG, Chief Judge, and ROGERS and BROWN,

Circuit Judges.

Opinion for the Court filed by Chief Judge GINSBURG.

GINSBURG, Chief Judge: Marrita Murphy brought this suit

to recover income taxes she paid on the compensatory damages

for emotional distress and loss of reputation she was awarded in

an administrative action she brought against her former

employer. Murphy contends that under § 104(a)(2) of the

Internal Revenue Code (IRC), 26 U.S.C. § 104(a)(2), her award

should have been excluded from her gross income because it

was compensation received “on account of personal physical

injuries or physical sickness.” She also maintains that, in any

event, her award is not part of her gross income as defined by

§ 61 of the IRC, 26 U.S.C. § 61. Finally, she argues that taxing

her award subjects her to an unapportioned direct tax in

violation of Article I, Section 9 of the Constitution of the United

States. 

We reject Murphy’s argument in all aspects. We hold, first,

that Murphy’s compensation was not “received ... on account of

personal physical injuries” excludable from gross income under

§ 104(a)(2). Second, we conclude gross income as defined by

§ 61 includes compensatory damages for non-physical injuries.

Third, we hold that a tax upon such damages is within the

Congress’s power to tax.

I. Background

In 1994 Marrita Leveille (now Murphy) filed a complaint

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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

Murphy, 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.”

On remand Murphy submitted evidence that she had

suffered both mental and physical injuries as a result of the

NYANG's blacklisting her. A psychologist testified that

Murphy 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. Noting that Murphy also suffered from other “physical

manifestations of stress” including “anxiety attacks, shortness of

breath, and dizziness,” and that Murphy testified she “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

[Murphy’s] vocational reputation” from having been blacklisted.

None of the award was for lost wages or diminished earning

capacity. 

In 1999 the Department of Labor Administrative Review

Board affirmed the ALJ’s findings and recommendations. See

Leveille v. N.Y. Air Nat’l Guard, 1999 WL 966951, at *2-*4

(Oct. 25, 1999). On her tax return for 2000, Murphy included

the $70,000 award in her “gross income” pursuant to § 61 of the

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IRC. See 26 U.S.C. § 61(a) (“[G]ross income means all income

from whatever source derived”). As a result, she paid $20,665

in taxes on the award. 

Murphy later filed an amended return in which she sought

a refund of the $20,665 based upon § 104(a)(2) of the IRC,

which provides that “gross income does not include ... damages

... received ... on account of personal physical injuries or

physical sickness.” In support of her amended return, Murphy

submitted copies of her dental and medical records. Upon

deciding Murphy had failed to demonstrate the compensatory

damages were attributable to “physical injury” or “physical

sickness,” the Internal Revenue Service denied her request for

a refund. Murphy thereafter sued the IRS and the United States

in the district court. 

In her complaint Murphy sought a refund of the $20,665,

plus applicable interest, pursuant to the Sixteenth Amendment

to the Constitution of the United States, along with declaratory

and injunctive relief against the IRS pursuant to the

Adminstrative Procedure Act and the Due Process Clause of the

Fifth Amendment. She argued her compensatory award was in

fact for “physical personal injuries” and therefore excluded from

gross income under § 104(a)(2). In the alternative Murphy

asserted taxing her award was unconstitutional because the

award was not “income” within the meaning of the Sixteenth

Amendment. The Government moved to dismiss Murphy’s suit

as to the IRS, contending the Service was not a proper

defendant, and for summary judgment on all claims. 

The district court denied the Government’s motion to

dismiss, holding that Murphy had the right to bring an “action[]

for declaratory judgments or ... [a] mandatory injunction”

against an “agency by its official title,” pursuant to § 703 of the

APA, 5 U.S.C. § 703. Murphy v. IRS, 362 F. Supp. 2d 206,

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211-12, 218 (2005). The court then rejected all of Murphy’s

claims on the merits and granted summary judgment for the

Government and the IRS. Id. 

Murphy appealed the judgment of the district court with

respect to her claims under § 104(a)(2) and the Sixteenth

Amendment. In Murphy v. IRS, 460 F.3d 79 (2006), we

concluded Murphy’s award was not exempt from taxation

pursuant to § 104(a)(2), id. at 84, but also was not “income”

within the meaning of the Sixteenth Amendment, id. at 92, and

therefore reversed the decision of the district court. The

Government petitioned for rehearing en banc, arguing for the

first time that, even if Murphy’s award is not income, there is no

constitutional impediment to taxing it because a tax on the

award is not a direct tax and is imposed uniformly. In view of

the importance of the issue thus belatedly raised, the panel sua

sponte vacated its judgment and reheard the case. See

Consumers Union of U.S., Inc. v. Fed. Power Comm’n, 510 F.2d

656, 662 (D.C. Cir. 1975) (“[R]egarding the contents of briefs

on appeal, we may also consider points not raised in the briefs

or in oral argument. Our willingness to do so rests on a

balancing of considerations of judicial orderliness and efficiency

against the need for the greatest possible accuracy in judicial

decisionmaking. The latter factor is of particular weight when

the decision affects the broad public interest.”) (footnotes

omitted); see also Eli Lilly & Co. v. Home Ins. Co., 794 F.2d

710, 717 (D.C. Cir. 1986) (“The rule in this circuit is that

litigants must raise their claims on their initial appeal and not in

subsequent hearings following a remand. This is a specific

application of the general waiver rule, which bends only in

‘exceptional circumstances, where injustice might otherwise

result.’”) (quoting Dist. of Columbia v. Air Florida, Inc., 750

F.2d 1077, 1085 (D.C. Cir. 1984)) (citation omitted). In the

present opinion, we affirm the judgment of the district court

based upon the newly argued ground that Murphy’s award, even

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if it is not income within the meaning of the Sixteenth

Amendment, is within the reach of the congressional power to

tax under Article I, Section 8 of the Constitution. 

 II. Analysis

We review the district court’s grant of summary judgment

de novo, Flynn v. R.C. Tile, 353 F.3d 953, 957 (D.C. Cir. 2004),

bearing in mind that summary judgment is appropriate only “if

there is no genuine issue as to any material fact and if the

moving party is entitled to judgment as a matter of law,”

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986).

Before addressing Murphy’s claims on their merits, however, we

must determine whether the district court erred in holding the

IRS was a proper defendant. 

A. The IRS as a Defendant

The Government contends the courts lack jurisdiction over

Murphy’s claims against the IRS because the Congress has not

waived that agency’s immunity from declaratory and injunctive

actions pursuant to 28 U.S.C. § 2201(a) (courts may grant

declaratory relief “except with respect to Federal taxes”) and 26

U.S.C. § 7421(a) (“no suit for the purpose of restraining the

assessment or collection of any tax shall be maintained in any

court by any person”); and insofar as the Congress in 28 U.S.C.

§ 1346(a)(1) has waived immunity from civil actions seeking tax

refunds, that provision on its face applies to “civil action[s]

against the United States,” not against the IRS. In reply Murphy

argues only that the Government forfeited the issue of sovereign

immunity because it did not cross-appeal the district court’s

denial of its motion to dismiss. See FED. R. APP. P. 4(a)(3).

Notwithstanding the Government's failure to cross-appeal,

however, the court must address a question concerning its

jurisdiction. See Occidental Petroleum Corp. v. SEC, 873 F.2d

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325, 328 (D.C. Cir. 1989) (“As a preliminary matter ... we must

address the question of our jurisdiction to hear this appeal”). 

Murphy and the district court are correct that § 703 of the

APA does create a right of action for equitable relief against a

federal agency but, as the Government correctly points out, the

Congress has preserved the immunity of the United States from

declaratory and injunctive relief with respect to all tax

controversies except those pertaining to the classification of

organizations under § 501(c) of the IRC. See 28 U.S.C.

§ 2201(a); 26 U.S.C. § 7421(a). As an agency of the

Government, of course, the IRS shares that immunity. See

Settles v. U.S. Parole Comm’n, 429 F.3d 1098, 1106 (D.C. Cir.

2005) (agency “retains the immunity it is due as an arm of the

federal sovereign”). Insofar as the Congress in 28 U.S.C.

§ 1346(a)(1) has waived sovereign immunity with respect to

suits for tax refunds, that provision specifically contemplates

only actions against the “United States.” Therefore, we hold the

IRS, unlike the United States, may not be sued eo nomine in this

case. 

 

B. Section 104(a)(2) of the IRC 

Section 104(a) (“Compensation for injuries or sickness”)

provides that “gross income [under § 61 of the IRC] does not

include the amount of any damages (other than punitive

damages) received ... on account of personal physical injuries or

physical sickness.” 26 U.S.C. § 104(a)(2). Since 1996 it has

further provided that, for purposes of this exclusion, “emotional

distress shall not be treated as a physical injury or physical

sickness.” Id. § 104(a). The version of § 104(a)(2) in effect

prior to 1996 had excluded from gross income monies received

in compensation for “personal injuries or sickness,” which

included both physical and nonphysical injuries such as

emotional distress. Id. § 104(a)(2) (1995); see United States v.

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Burke, 504 U.S. 229, 235 n.6 (1992) (“[section] 104(a)(2) in fact

encompasses a broad range of physical and nonphysical injuries

to personal interests”). In Commissioner v. Schleier, 515 U.S.

323 (1995), the Supreme Court held that before a taxpayer may

exclude compensatory damages from gross income pursuant to

§ 104(a)(2), he must first demonstrate that “the underlying cause

of action giving rise to the recovery [was] ‘based upon tort or

tort type rights.’” Id. at 337. The taxpayer has the same burden

under the statute as amended. See, e.g., Chamberlain v. United

States, 401 F.3d 335, 341 (5th Cir. 2005). 

Murphy contends § 104(a)(2), even as amended, excludes

her particular award from gross income. First, she asserts her

award was “based upon ... tort type rights” in the whistle-blower

statutes the NYANG violated — a position the Government does

not challenge. Second, she claims she was compensated for

“physical” injuries, which claim the Government does dispute.

Murphy points both to her psychologist’s testimony that she

had experienced “somatic” and “body” injuries “as a result of

NYANG's blacklisting [her],” and to the American Heritage

Dictionary, which defines “somatic” as “relating to, or affecting

the body, especially as distinguished from a body part, the mind,

or the environment.” Murphy further argues the dental records

she submitted to the IRS proved she has suffered permanent

damage to her teeth. Citing Walters v. Mintec/International, 758

F.2d 73, 78 (3d Cir. 1985), and Payne v. Gen. Motors Corp., 731

F. Supp. 1465, 1474-75 (D. Kan. 1990), Murphy contends that

“substantial physical problems caused by emotional distress are

considered physical injuries or physical sickness.” 

Murphy further contends that neither § 104 of the IRC nor

the regulation issued thereunder “limits the physical disability

exclusion to a physical stimulus.” In fact, as Murphy points out,

the applicable regulation, which provides that § 104(a)(2)

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“excludes from gross income the amount of any damages

received (whether by suit or agreement) on account of personal

injuries or sickness,” 26 C.F.R. § 1.104-1(c), does not

distinguish between physical injuries stemming from physical

stimuli and those arising from emotional trauma; rather, it tracks

the pre-1996 text of § 104(a)(2), which the IRS agrees excluded

from gross income compensation both for physical and for

nonphysical injuries. 

For its part, the Government argues Murphy’s focus upon

the word “physical” in § 104(a)(2) is misplaced; more important

is the phrase “on account of.” In O’Gilvie v. United States, 519

U.S. 79 (1996), the Supreme Court read that phrase to require a

“strong[] causal connection,” thereby making § 104(a)(2)

“applicable only to those personal injury lawsuit damages that

were awarded by reason of, or because of, the personal injuries.”

Id. at 83. The Court specifically rejected a “but-for” formulation

in favor of a “stronger causal connection.” Id. at 82-83. The

Government therefore concludes Murphy must demonstrate she

was awarded damages “because of” her physical injuries, which

the Government claims she has failed to do. 

Indeed, as the Government points out, the ALJ expressly

recommended, and the Board expressly awarded, compensatory

damages “because of” Murphy’s nonphysical injuries. The

Board analyzed the ALJ’s recommendation under the headings

“Compensatory damage for emotional distress or mental

anguish” and “Compensatory damage award for injury to

professional reputation,” and noted such damages compensate

“not only for direct pecuniary loss, but also for such harms as

impairment of reputation, personal humiliation, and mental

anguish and suffering.” Leveille, 1999 WL 966951 at *2. In

describing the ALJ’s proposed award as “reasonable,” the Board

stated Murphy was to receive “$45,000 for mental pain and

anguish” and “$25,000 for injury to professional reputation.”

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Although Murphy may have suffered from bruxism or other

physical symptoms of stress, the Board focused upon Murphy’s

testimony that she experienced “severe anxiety attacks, inability

to concentrate, a feeling that she no longer enjoyed ‘anything in

life,’ and marital conflict” and upon her psychologist’s

testimony about the “substantial effect the negative references

had on [Murphy].” Id. at *3. The Board made no reference to

her bruxism, and acknowledged that “[a]ny attempt to set a

monetary value on intangible damages such as mental pain and

anguish involves a subjective judgment,” id. at *4, before

concluding the ALJ’s recommendation was reasonable. The

Government therefore argues “there was no direct causal link

between the damages award at issue and [Murphy’s] bruxism.”

Murphy responds that it is undisputed she suffered both

“somatic” and “emotional” injuries, and the ALJ and Board

expressly cited to the portion of her psychologist’s testimony

establishing that fact. She contends the Board therefore relied

upon her physical injuries in determining her damages, making

those injuries a direct cause of her award in spite of the Board’s

labeling the award as one for emotional distress.

Although the pre-1996 version of § 104(a)(2) was at issue

in O’Gilvie, the Court’s analysis of the phrase “on account of,”

which phrase was unchanged by the 1996 Amendments, remains

controlling here. Murphy no doubt suffered from certain

physical manifestations of emotional distress, but the record

clearly indicates the Board awarded her compensation only “for

mental pain and anguish” and “for injury to professional

reputation.” Id. at *5. Although the Board cited her

psychologist, who had mentioned her physical aliments, in

support of Murphy’s “description of her mental anguish,” we

cannot say the Board, notwithstanding its clear statements to the

contrary, actually awarded damages because of Murphy’s

bruxism and other physical manifestations of stress. Id. at *3.

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*

 Insofar as compensation for nonphysical personal injuries

appears to be excludable from gross income under 26 C.F.R.

§ 1.104-1, the regulation conflicts with the plain text of § 104(a)(2);

in these circumstances the statute clearly controls. See Brown v.

Gardner, 513 U.S. 115, 122 (1994) (finding “no antidote to [a

regulation’s] clear inconsistency with a statute”).

At best — and this is doubtful — at best the Board and the ALJ

may have considered her physical injuries indicative of the

severity of the emotional distress for which the damages were

awarded, but her physical injuries themselves were not the

reason for the award. The Board thus having left no room for

doubt about the grounds for her award, we conclude Murphy’s

damages were not “awarded by reason of, or because of, ...

[physical] personal injuries,” O’Gilvie, 519 U.S. at 83.

Therefore, § 104(a)(2) does not permit Murphy to exclude her

award from gross income.*

C. Section 61 of the IRC 

Murphy and the Government agree that for Murphy’s award

to be taxable, it must be part of her “gross income” as defined by

§ 61(a) of the IRC, which states in relevant part: “gross income

means all income from whatever source derived.” The Supreme

Court has interpreted the section broadly to extend to “all

economic gains not otherwise exempted.” Comm’r v. Banks,

543 U.S. 426, 433 (2005); see also, e.g., James v. United States,

366 U.S. 213, 219 (1961) (Section 61 encompasses “all

accessions to wealth”) (internal quotation mark omitted);

Comm’r v. Glenshaw Glass Co., 348 U.S. 426, 430 (“the Court

has given a liberal construction to [“gross income”] in

recognition of the intention of Congress to tax all gains except

those specifically exempted”). “Gross income” in § 61(a) is at

least as broad as the meaning of “incomes” in the Sixteenth

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* The Sixteenth Amendment provides: “The Congress shall

have power to lay and collect taxes on incomes, from whatever source

derived, without apportionment among the several States, and without

regard to any census or enumeration.”

Amendment.* See Glenshaw Glass, 348 U.S. at 429, 432 n.11

(quoting H.R. Rep. No. 83-1337, at A18 (1954), reprinted in

1954 U.S.C.C.A.N. 4017, 4155); Helvering v. Bruun, 309 U.S.

461, 468 (1940).

Murphy argues her award is not a gain or an accession to

wealth and therefore not part of gross income. Noting the

Supreme Court has long recognized “the principle that a

restoration of capital [i]s not income; hence it [falls] outside the

definition of ‘income’ upon which the law impose[s] a tax,”

O’Gilvie, 519 U.S. at 84; see, e.g., Doyle v. Mitchell Bros. Co.,

247 U.S. 179, 187-88 (1918); S. Pac. Co. v. Lowe, 247 U.S. 330,

335 (1918), Murphy contends a damage award for personal

injuries — including nonphysical injuries — should be viewed

as a return of a particular form of capital — “human capital,” as

it were. See Gary S. Becker, HUMAN CAPITAL (1st ed. 1964);

Gary S. Becker, The Economic Way of Looking at Life, Nobel

Lecture (Dec. 9, 1992), in NOBEL LECTURES IN ECONOMIC

SCIENCES 1991-1995, at 43-45 (Torsten Persson ed., 1997). In

her view, the Supreme Court in Glenshaw Glass acknowledged

the relevance of the human capital concept for tax purposes.

There, in holding that punitive damages for personal injury were

“gross income” under the predecessor to § 61, the Court stated:

The long history of ... holding personal injury

recoveries nontaxable on the theory that they roughly

correspond to a return of capital cannot support

exemption of punitive damages following injury to

property .... Damages for personal injury are by

definition compensatory only. Punitive damages, on

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the other hand, cannot be considered a restoration of

capital for taxation purposes.

348 U.S. at 432 n.8. By implication, Murphy argues, damages

for personal injury are a “restoration of capital.”

As further support, Murphy cites various administrative

rulings issued shortly after passage of the Sixteenth Amendment

that concluded recoveries from personal injuries were not

income, such as this 1918 Opinion of the Attorney General: 

Without affirming that the human body is in a technical

sense the “capital” invested in an accident policy, in a

broad, natural sense the proceeds of the policy do but

substitute, so far as they go, capital which is the source

of future periodical income. They merely take the

place of capital in human ability which was destroyed

by the accident. They are therefore “capital” as

distinguished from “income” receipts.

31 Op. Att’y Gen. 304, 308; see T.D. 2747, 20 Treas. Dec. Int.

Rev. 457 (1918); Sol. Op. 132, I-1 C.B. 92, 93-94 (1922)

(“[M]oney received ... on account of ... defamation of personal

character ... does not constitute income within the meaning of

the sixteenth amendment and the statutes enacted thereunder”).

She also cites a House Report on the bill that became the

Revenue Act of 1918. H.R. Rep. No. 65-767, at 9-10 (1918)

(“Under the present law it is doubtful whether amounts received

... as compensation for personal injury ... are required to be

included in gross income”); see also Dotson v. United States, 87

F.3d 682, 685 (5th Cir. 1996) (concluding on basis of House

Report that the “Congress first enacted the personal injury

compensation exclusion ... when such payments were considered

the return of human capital, and thus not constitutionally taxable

‘income’ under the 16th amendment”). 

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Finally, Murphy argues her interpretation of § 61 is

reflected in the common law of tort and the provisions in various

environmental statutes and Title VII of the Civil Rights Act of

1964, all of which provide for “make whole” relief. See, e.g., 42

U.S.C. § 1981a; 15 U.S.C. § 2622. If a recovery of damages

designed to “make whole” the plaintiff is taxable, she reasons,

then one who receives the award has not been made whole after

tax. Section 61 should not be read to create a conflict between

the tax code and the “make whole” purpose of the various

statutes.

The Government disputes Murphy’s interpretation on all

fronts. First, noting “the definition [of gross income in the IRC]

extends broadly to all economic gains,” Banks, 543 U.S. at 433,

the Government asserts Murphy “undeniably had economic gain

because she was better off financially after receiving the

damages award than she was prior to receiving it.” Second, the

Government argues that the case law Murphy cites does not

support the proposition that the Congress lacks the power to tax

as income recoveries for personal injuries. In its view, to the

extent the Supreme Court has addressed at all the taxability of

compensatory damages, see, e.g., O’Gilvie, 519 U.S. at 86;

Glenshaw Glass, 348 U.S. at 432 n.8, it was merely articulating

the Congress’s rationale at the time for not taxing such damages,

not the Court’s own view whether such damages could

constitutionally be taxed.

Third, the Government challenges the relevance of the

administrative rulings Murphy cites from around the time the

Sixteenth Amendment was ratified; Treasury decisions dating

from even closer to the time of ratification treated damages

received on account of personal injury as income. See T.D.

2135, 17 Treas. Dec. Int. Rev. 39, 42 (1915); T.D. 2690, Reg.

No. 33 (Rev.), art. 4, 20 Treas. Dec. Int. Rev. 126, 130 (1918).

Furthermore, administrative rulings from the time suggest that,

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even if recoveries for physical personal injuries were not

considered part of income, recoveries for nonphysical personal

injuries were. See Sol. Mem. 957, 1 C.B. 65 (1919) (damages

for libel subject to income tax); Sol. Mem. 1384, 2 C.B. 71

(1920) (recovery of damages from alienation of wife’s affections

not regarded as return of capital, hence taxable). Although the

Treasury changed its position in 1922, see Sol. Op. 132, I-1 C.B.

at 93-94, it did so only after the Supreme Court’s decision in

Eisner v. Macomber, 252 U.S. 189 (1920), which the Court later

viewed as having established a definition of income that “served

a useful purpose [but] was not meant to provide a touchstone to

all future gross income questions.” Glenshaw Glass, 348 U.S.

at 430-31. As for Murphy’s contention that reading § 61 to

include her damages would be in tension with the common law

and various statutes providing for “make whole” relief, the

Government denies there is any tension and suggests Murphy is

trying to turn a disagreement over tax policy into a constitutional

issue.

Finally, the Government argues that even if the concept of

human capital is built into § 61, Murphy’s award is nonetheless

taxable because Murphy has no tax basis in her human capital.

Under the IRC, a taxpayer’s gain upon the disposition of

property is the difference between the “amount realized” from

the disposition and his basis in the property, 26 U.S.C. § 1001,

defined as “the cost of such property,” id. § 1012, adjusted “for

expenditures, receipts, losses, or other items, properly

chargeable to [a] capital account,” id. § 1016(a)(1). The

Government asserts, “The Code does not allow individuals to

claim a basis in their human capital”; accordingly, Murphy’s

gain is the full value of the award. See Roemer v. Comm’r, 716

F.2d 693, 696 n.2 (9th Cir. 1983) (“Since there is no tax basis in

a person’s health and other personal interests, money received

as compensation for an injury to those interests might be

considered a realized accession to wealth”) (dictum).

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* Murphy also suggestsfurtherinsight into whether her award

is income can be gleaned from application of the “in lieu of” test. See

Raytheon Prod. Corp. v. Comm’r, 144 F.2d 110, 113 (1st Cir. 1944).

As she acknowledges, however, we would still be required to

determine whether her award was compensatory or an accession to

wealth, which is the same analysis Glenshaw Glass and its progeny

demand. As discussed below, it is unnecessary to determine if there

was an accession to wealth in this case; § 61 encompasses Murphy’s

award regardless.

Although Murphy and the Government focus primarily

upon whether Murphy’s award falls within the definition of

income first used in Glenshaw Glass,

* coming within that

definition is not the only way in which § 61(a) could be held to

encompass her award. Principles of statutory interpretation

could show § 61(a) includes Murphy’s award in her gross

income regardless whether it was an “accession to wealth,” as

Glenshaw Glass requires. For example, if § 61(a) were

amended specifically to include in gross income “$100,000 in

addition to all other gross income,” then that additional sum

would be a part of gross income under § 61 even though no

actual gain was associated with it. In other words, although the

“Congress cannot make a thing income which is not so in fact,”

Burk-Waggoner Oil Ass’n v. Hopkins, 269 U.S. 110, 114 (1925),

it can label a thing income and tax it, so long as it acts within its

constitutional authority, which includes not only the Sixteenth

Amendment but also Article I, Sections 8 and 9. See Penn Mut.

Indem. Co. v. Comm’r, 277 F.2d 16, 20 (3d Cir. 1960)

(“Congress has the power to impose taxes generally, and if the

particular imposition does not run afoul of any constitutional

restrictions then the tax is lawful, call it what you will”)

(footnote omitted). Accordingly, rather than ask whether

Murphy’s award was an accession to her wealth, we go to the

heart of the matter, which is whether her award is properly

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17

included within the definition of gross income in § 61(a), to wit,

“all income from whatever source derived.”

Looking at § 61(a) by itself, one sees no indication that it

covers Murphy’s award unless the award is “income” as defined

by Glenshaw Glass and later cases. Damages received for

emotional distress are not listed among the examples of income

in § 61 and, as Murphy points out, an ambiguity in the meaning

of a revenue-raising statute should be resolved in favor of the

taxpayer. See, e.g., Hassett v. Welch, 303 U.S. 303, 314 (1938);

Gould v. Gould, 245 U.S. 151, 153 (1917); see also United

Dominion Indus., Inc. v. United States, 532 U.S. 822, 839 (2001)

(Thomas, J., concurring); id. at 839 n.1 (Stevens, J., dissenting);

3A NORMAN J. SINGER, SUTHERLAND STATUTES &STATUTORY

CONSTRUCTION § 66:1 (6th ed. 2003). A statute is to be read as

a whole, however, see, e.g., Alaska Dep’t of Envtl. Conservation

v. EPA, 540 U.S. 461, 489 n.13 (2004), and reading § 61 in

combination with § 104(a)(2) of the Internal Revenue Code

presents a very different picture — a picture so clear that we

have no occasion to apply the canon favoring the interpretation

of ambiguous revenue-raising statutes in favor of the taxpayer.

As noted above, in 1996 the Congress amended § 104(a) to

narrow the exclusion to amounts received on account of

“personal physical injuries or physical sickness” from “personal

injuries or sickness,” and explicitly to provide that “emotional

distress shall not be treated as a physical injury or physical

sickness,” thus making clear that an award received on account

of emotional distress is not excluded from gross income under

§ 104(a)(2). Small Business Job Protection Act of 1996, Pub. L.

104-188, § 1605, 110 Stat. 1755, 1838. As this amendment,

which narrows the exclusion, would have no effect whatsoever

if such damages were not included within the ambit of § 61, and

as we must presume that “[w]hen Congress acts to amend a

statute, ... it intends its amendment to have real and substantial

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18

* As evidence the presumption is well-founded in this case,

we note the House Report accompanying the 1996 amendment to

§ 104 explicitly presumes recoveries for nonphysical injuries would

be included in gross income: Part of the section explaining the effect

of the amendment is entitled “Include in income damage recoveries for

nonphysical injuries.” H.R. Rep. No. 104-586, at 143-44 (1996),

reprinted in 1996-3 C.B. 331, 481-82. 

effect,” Stone v. INS, 514 U.S. 386, 397 (1995), the 1996

amendment of § 104(a) strongly suggests § 61 should be read to

include an award for damages from nonphysical harms.*

Although it is unclear whether § 61 covered such an award

before 1996, we need not address that question here; even if the

provision did not do so prior to 1996, the presumption indicates

the Congress implicitly amended § 61 to cover such an award

when it amended § 104(a). 

We realize, of course, that amendments by implication, like

repeals by implication, are disfavored. United States v. Welden,

377 U.S. 95, 103 n.12 (1964); Cheney R.R. Co. v. R.R. Ret. Bd.,

50 F.3d 1071, 1078 (D.C. Cir. 1995). The Supreme Court has

also noted, however, that the “classic judicial task of reconciling

many laws enacted over time, and getting them to ‘make sense’

in combination, necessarily assumes that the implications of a

statute may be altered by the implications of a later statute.”

United States v. Fausto, 484 U.S. 439, 453 (1988); see also FDA

v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133

(2000) (“[T]he meaning of one statute may be affected by other

Acts, particularly where Congress has spoken subsequently and

more specifically to the topic at hand”); Almendarez-Torres v.

United States, 523 U.S. 224, 237 (1998) (suggesting later

enacted laws “depend[ing] for their effectiveness upon

clarification, or a change in the meaning of an earlier statute”

provide a “forward looking legislative mandate, guidance, or

direct suggestion about how courts should interpret the earlier

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19

provisions”); cf. Franklin v. Gwinnett County Pub. Sch., 503

U.S. 60, 72-73 (1992) (amendment of Title IX abrogating

States’ Eleventh Amendment immunity validated Court’s prior

holding that Title IX created implied right of action); id. at 78

(Scalia, J., concurring in judgment) (amendment to Title IX was

an “implicit acknowledgment that damages are available”). 

This “classic judicial task” is before us now. For the 1996

amendment of § 104(a) to “make sense,” gross income in

§ 61(a) must, and we therefore hold it does, include an award for

nonphysical damages such as Murphy received, regardless

whether the award is an accession to wealth. Cf. Vermont

Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S.

765, 786 & n.17 (2000) (determining meaning of “person” in

False Claims Act, which was originally enacted in 1863, based

in part upon definition of “person” in Program Fraud Civil

Remedies Act of 1986, which was “designed to operate in

tandem with the [earlier Act]”).

D. The Congress’s Power to Tax

The taxing power of the Congress is established by Article

I, Section 8 of the Constitution: “The Congress shall have power

to lay and collect taxes, duties, imposts and excises.” There are

two limitations on this power. First, as the same section goes on

to provide, “all duties, imposts and excises shall be uniform

throughout the United States.” Second, as provided in Section

9 of that same Article, “No capitation, or other direct, tax shall

be laid, unless in proportion to the census or enumeration herein

before directed to be taken.” See also U.S.CONST. art. I, § 2, cl.

3 (“direct taxes shall be apportioned among the several states

which may be included within this union, according to their

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20

* Though it is unclear whether an income tax is a direct tax,

the Sixteenth Amendment definitively establishes that a tax upon

income is not required to be apportioned. See Stanton v. Baltic Mining

Co., 240 U.S. 103, 112-13 (1916).

** Pollock II also held that a tax upon the income of real or

personal property is a direct tax. 158 U.S. at 637. Whether that

portion of Pollock remains good law is unclear. See Graves v. New

York ex rel. O’Keefe, 306 U.S. 466, 480 (1939).

respective numbers”).* We now consider whether the tax laid

upon Murphy’s award violates either of these two constraints.

1. A Direct Tax?

Over the years, courts have considered numerous claims

that one or another nonapportioned tax is a direct tax and

therefore unconstitutional. Although these cases have not

definitively marked the boundary between taxes that must be

apportioned and taxes that need not be, see Bromley v.

McCaughn, 280 U.S. 124, 136 (1929); Spreckels Sugar Ref. Co.

v. McClain, 192 U.S. 397, 413 (1904) (dividing line between

“taxes that are direct and those which are to be regarded simply

as excises” is “often very difficult to be expressed in words”),

some characteristics of each may be discerned. 

Only three taxes are definitely known to be direct: (1) a

capitation, U.S. CONST. art. I, § 9, (2) a tax upon real property,

and (3) a tax upon personal property. See Fernandez v. Wiener,

326 U.S. 340, 352 (1945) (“Congress may tax real estate or

chattels if the tax is apportioned”); Pollock v. Farmers’ Loan &

Trust Co., 158 U.S. 601, 637 (1895) (Pollock II).** Such direct

taxes are laid upon one’s “general ownership of property,”

Bromley, 280 U.S. at 136; see also Flint v. Stone Tracy Co., 220

U.S. 107, 149 (1911), as contrasted with excise taxes laid “upon

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21

a particular use or enjoyment of property or the shifting from

one to another of any power or privilege incidental to the

ownership or enjoyment of property.” Fernandez, 326 U.S. at

352; see also Thomas v. United States, 192 U.S. 363, 370 (1904)

(excises cover “duties imposed on importation, consumption,

manufacture and sale of certain commodities, privileges,

particular business transactions, vocations, occupations and the

like”). More specifically, excise taxes include, in addition to

taxes upon consumable items, see Patton v. Brady, 184 U.S.

608, 617-18 (1902), taxes upon the sale of grain on an exchange,

Nicol v. Ames, 173 U.S. 509, 519 (1899), the sale of corporate

stock, Thomas, 192 U.S. at 371, doing business in corporate

form, Flint, 220 U.S. at 151, gross receipts from the “business

of refining sugar,” Spreckels, 192 U.S. at 411, the transfer of

property at death, Knowlton v. Moore, 178 U.S. 41, 81-82

(1900), gifts, Bromley, 280 U.S. at 138, and income from

employment, see Pollock v. Farmers’ Loan & Trust Co., 157

U.S. 429, 579 (1895) (Pollock I) (citing Springer v. United

States, 102 U.S. 586 (1881)).

Murphy and the amici supporting her argue the dividing line

between direct and indirect taxes is based upon the ultimate

incidence of the tax; if the tax cannot be shifted to someone else,

as a capitation cannot, then it is a direct tax; but if the burden

can be passed along through a higher price, as a sales tax upon

a consumable good can be, then the tax is indirect. This, she

argues, was the distinction drawn when the Constitution was

ratified. See Albert Gallatin, A Sketch of the Finances of the

United States (1796), reprinted in 3 THE WRITINGS OF ALBERT

GALLATIN 74-75 (Henry Adams ed., Philadelphia, J.P.

Lippincott & Co. 1879) (“The most generally received opinion

... is, that by direct taxes ... those are meant which are raised on

the capital or revenue of the people; by indirect, such as are

raised on their expense”); THE FEDERALIST NO. 36, at 225

(Alexander Hamilton) (Jacob E. Cooke ed., 1961) (“internal

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22

taxes[] may be subdivided into those of the direct and those of

the indirect kind ... by which must be understood duties and

excises on articles of consumption”). But see Gallatin, supra, at

74 (“[Direct tax] is used, by different writers, and even by the

same writers, in different parts of their writings, in a variety of

senses, according to that view of the subject they were taking”);

EDWIN R.A. SELIGMAN, THE INCOME TAX 540 (photo. reprint

1970) (2d ed. 1914) (“there are almost as many classifications

of direct and indirect taxes are there are authors”). Moreover,

the amici argue, this understanding of the distinction explains

the different restrictions imposed respectively upon the power

of the Congress to tax directly (apportionment) and via excise

(uniformity). Duties, imposts, and excise taxes, which were

expected to constitute the bulk of the new federal government’s

revenue, see Erik M. Jensen, The Apportionment of “Direct

Taxes”: Are Consumption Taxes Constitutional?, 97 COLUM.L.

REV. 2334, 2382 (1997), have a built-in safeguard against

oppressively high rates: Higher taxes result in higher prices and

therefore fewer sales and ultimately lower tax revenues. See

THE FEDERALIST NO. 21, supra, at 134-35 (Alexander

Hamilton). Taxes that cannot be shifted, in contrast, lack this

self-regulating feature, and were therefore constrained by the

more stringent requirement of apportionment. See id. at 135

(“In a branch of taxation where no limits to the discretion of the

government are to be found in the nature of things, the

establishment of a fixed rule ... may be attended with fewer

inconveniences than to leave that discretion altogether at large”);

see also Jensen, supra, at 2382-84. 

Finally, the amici contend their understanding of a direct

tax was confirmed in Pollock II, where the Supreme Court noted

that “the words ‘duties, imposts, and excises’ are put in

antithesis to direct taxes,” 158 U.S. at 622, for which it cited

THE FEDERALIST NO. 36 (Hamilton). Pollock II, 158 U.S. at

624-25. As it is clear that Murphy cannot shift her tax burden

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23

to anyone else, per Murphy and the amici, it must be a direct tax.

The Government, unsurprisingly, backs a different

approach; by its lights, only “taxes that are capable of

apportionment in the first instance, specifically, capitation taxes

and taxes on land,” are direct taxes. The Government maintains

that this is how the term was generally understood at the time.

See Calvin H. Johnson, Fixing the Constitutional Absurdity of

the Apportionment of Direct Tax, 21 CONST. COMM. 295, 314

(2004). Moreover, it suggests, this understanding is more in line

with the underlying purpose of the tax and the apportionment

clauses, which were drafted in the intense light of experience

under the Articles of Confederation.

The Articles did not grant the Continental Congress the

power to raise revenue directly; it could only requisition funds

from the States. See ARTICLES OF CONFEDERATION art. VIII

(1781); Bruce Ackerman, Taxation and the Constitution, 99

COLUM. L. REV. 1, 6-7 (1999). This led to problems when the

States, as they often did, refused to remit funds. See Calvin H.

Johnson, The Constitutional Meaning of “Apportionment of

Direct Taxes,” 80 TAX NOTES 591, 593-94 (1998). The

Constitution redressed this problem by giving the new national

government plenary taxing power. See Ackerman, supra, at 7.

In the Government’s view, it therefore makes no sense to treat

“direct taxes” as encompassing taxes for which apportionment

is effectively impossible, because “the Framers could not have

intended to give Congress plenary taxing power, on the one

hand, and then so limit that power by requiring apportionment

for a broad category of taxes, on the other.” This view is,

according to the Government, buttressed by evidence that the

purpose of the apportionment clauses was not in fact to constrain

the power to tax, but rather to placate opponents of the

compromise over representation of the slave states in the House,

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* Many Northern delegates were opposed to the three-fifths

compromise on the ground that if slaves were property, then they

should not count for the purpose of representation. Apportionment

effectively meant that if the slaveholding states were to receive

representation in the House for their slaves, then because apportioned

taxes must be allocated across states based upon their representation,

the slaveholding states would pay more in taxes to the national

government than they would have if slaves were not counted at all in

determining representation. See Ackerman, supra, at 9.

Apportionment was then limited to direct taxes lest it drive the

Congress back to reliance upon requisitions from the States. See id.

at 9-10.

as embodied in the Three-fifths Clause.* See Ackerman, supra,

at 10-11. See generally SELIGMAN, supra, at 548-55. As the

Government interprets the historical record, the apportionment

limitation was “more symbolic than anything else: it appeased

the anti-slavery sentiment of the North and offered a practical

advantage to the South as long as the scope of direct taxes was

limited.” See Ackerman, supra, at 10. But see Erik M. Jensen,

Taxation and the Constitution: How to Read the Direct Tax

Clauses, 15 J.L. & POL. 687, 704 (1999) (“One of the reasons

[the direct tax restriction] worked as a compromise was that it

had teeth — it made direct taxes difficult to impose — and it

had teeth however slaves were counted”).

The Government’s view of the clauses is further supported

by the near contemporaneous decision of the Supreme Court in

Hylton v. United States, 3 U.S. (3 Dall.) 171 (1796), holding that

a national tax upon carriages was not a direct tax, and thus not

subject to apportionment. Justices Chase and Iredell opined that

a “direct tax” was one that, unlike the carriage tax, as a practical

matter could be apportioned among the States, id. at 174 (Chase,

J.); id. at 181 (Iredell, J.), while Justice Paterson, noting the

connection between apportionment and slavery, condemned

apportionment as “radically wrong” and “not to be extended by

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* The other Justice to hear the case, Wilson, J., had previously

determined while sitting on the Circuit Court of Virginia, that the tax

was not direct and so he did not write a full opinion. Id. at 183-84.

construction,” id. at 177-78.* As for Murphy’s reliance upon

Pollock II, the Government contends that although it has never

been overruled, “every aspect of its reasoning has been eroded,”

see, e.g., Stanton v. Baltic Mining Co., 240 U.S. 103, 112-13

(1916), and notes that in Pollock II itself the Court

acknowledged that “taxation on business, privileges, or

employments has assumed the guise of an excise tax,” 158 U.S.

at 635. Pollock II, in the Government’s view, is therefore too

weak a reed to support Murphy’s broad definition of “direct tax”

and certainly does not make “a tax on the conversion of human

capital into money ... problematic.”

Murphy replies that the Government’s historical analysis

does not respond to the contemporaneous sources she and the

amici identified showing that taxes imposed upon individuals

are direct taxes. As for Hylton, Murphy argues nothing in that

decision precludes her position; the Justices viewed the carriage

tax there at issue as a tax upon an expense, see 3 U.S. (3 Dall.)

at 175 (Chase, J.); see also id. at 180-81 (Paterson, J.), which

she agrees is not a direct tax. See Pollock II, 158 U.S. at 626-27.

To the extent Hylton is inconsistent with her position, however,

Murphy contends her references to the Federalist are more

authoritative evidence of the Framers’ understanding of the

term.

Murphy makes no attempt to reconcile her definition with

the long line of cases identifying various taxes as excise taxes,

although several of them seem to refute her position directly. In

particular, we do not see how a known excise, such as the estate

tax, see, e.g., New York Trust Co. v. Eisner, 256 U.S. 345, 349

(1921); Knowlton, 178 U.S. at 81-83, or a tax upon income from

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employment, see Pollock II, 158 U.S. at 635; Pollock I, 157 U.S.

at 579; cf. Steward Mach. Co. v. Davis, 301 U.S. 548, 580-81

(1937) (tax upon employers based upon wages paid to

employeesis an excise), can be shifted to another person, absent

which they seem to be in irreconcilable conflict with her

position that a tax that cannot be shifted to someone else is a

direct tax. Though it could be argued that the incidence of an

estate tax is inevitably shifted to the beneficiaries, we see at

work none of the restraint upon excessive taxation that Murphy

claims such shifting is supposed to provide; the tax is triggered

by an event, death, that cannot be shifted or avoided. In any

event, Knowlton addressed the argument that Pollock I and II

made ability to shift the hallmark of a direct tax, and rejected it.

178 U.S. at 81-82. Regardless what the original understanding

may have been, therefore, we are bound to follow the Supreme

Court, which has strongly intimated that Murphy’s position is

not the law.

That said, neither need we adopt the Government’s position

that direct taxes are only those capable of satisfying the

constraint of apportionment. In the abstract, such a constraint is

no constraint at all; virtually any tax may be apportioned by

establishing different rates in different states. See Pollock II,

158 U.S. at 632-33. If the Government’s position is instead that

by “capable of apportionment” it means “capable of

apportionment in a manner that does not unfairly tax some

individuals more than others,” then it is difficult to see how a

land tax, which is widely understood to be a direct tax, could be

apportioned by population without similarly imposing

significantly non-uniform rates. See Hylton, 3 U.S. (3 Dall.) at

178-79 (Paterson, J.); Johnson, Constitutional Absurdity, supra,

at 328. But see, e.g., Hylton, 3 U.S. (3 Dall.) at 183 (Iredell, J.)

(contending land tax is capable of apportionment). 

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We find it more appropriate to analyze this case based upon

the precedents and therefore to ask whether the tax laid upon

Murphy’s award is more akin, on the one hand, to a capitation

or a tax upon one’s ownership of property, or, on the other hand,

more like a tax upon a use of property, a privilege, an activity,

or a transaction, see Thomas, 192 U.S. at 370. Even if we

assume one’s human capital should be treated as personal

property, it does not appear that this tax is upon ownership;

rather, as the Government points out, Murphy is taxed only after

she receives a compensatory award, which makes the tax seem

to be laid upon a transaction. See Tyler v. United States, 281

U.S. 497, 502 (1930) (“A tax laid upon the happening of an

event, as distinguished from its tangible fruits, is an indirect tax

which Congress, in respect of some events ... undoubtedly may

impose”); Simmons v. United States, 308 F.2d 160, 166 (4th Cir.

1962) (tax upon receipt of money is not a direct tax); cf. Penn

Mut., 277 F.2d at 20. Murphy’s situation seems akin to an

involuntary conversion of assets; she was forced to surrender

some part of her mental health and reputation in return for

monetary damages. Cf. 26 U.S.C. § 1033 (property

involuntarily converted into money is taxed to extent of gain

recognized).

At oral argument Murphy resisted this formulation on the

ground that the receipt of an award in lieu of lost mental health

or reputation is not a transaction. This view is tenable, however,

only if one decouples Murphy’s injury (emotional distress and

lost reputation) from her monetary award, but that is not

beneficial to Murphy’s cause, for then Murphy has nothing to

offset the obvious accession to her wealth, which is taxable as

income. Murphy also suggested at oral argument that there was

no transaction because she did not profit. Whether she profited

is irrelevant, however, to whether a tax upon an award of

damages is a direct tax requiring apportionment; profit is

relevant only to whether, if it is a direct tax, it nevertheless need

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not be apportioned because the object of the tax is income

within the meaning of the Sixteenth Amendment. Cf. Spreckels,

192 U.S. at 412-13 (tax upon gross receipts associated with

business of refining sugar not a direct tax); Penn Mut., 277 F.2d

at 20 (tax upon gross receipts deemed valid indirect tax despite

taxpayer’s net loss). 

So we return to the question: Is a tax upon this particular

kind of transaction equivalent to a tax upon a person or his

property? Cf. Bromley, 280 U.S. at 138 (assuming without

deciding that a tax “levied upon all the uses to which property

may be put, or upon the exercise of a single power indispensable

to the enjoyment of all others over it, would be in effect a tax

upon property”). Murphy did not receive her damages pursuant

to a business activity, cf. Flint, 220 U.S. at 151; Spreckels, 192

U.S. at 411, and we therefore do not view this tax as an excise

under that theory. See Stratton’s Independence, Ltd. v. Howbert,

231 U.S. 399, 414-15 (1913) (“The sale outright of a mining

property might be fairly described as a mere conversion of the

capital from land into money”). On the other hand, as noted

above, the Supreme Court several times has held a tax not

related to business activity is nonetheless an excise. And the tax

at issue here is similar to those. 

Bromley, in which a gift tax was deemed an excise, is

particularly instructive: The Court noted it was “a tax laid only

upon the exercise of a single one of those powers incident to

ownership,” 280 U.S. at 136, which distinguished it from “a tax

which falls upon the owner merely because he is owner,

regardless of the use or disposition made of his property,” id. at

137. A gift is the functional equivalent of a below-market sale;

it therefore stands to reason that if, as Bromley holds, a gift tax,

or a tax upon a below-market sale, is a tax laid not upon

ownership but upon the exercise of a power “incident to

ownership,” then a tax upon the sale of property at fair market

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* For the same reason, we infer from Knowlton that a tax laid

upon an amount received in settlement of a suit for a personal

nonphysical injury would also be an excise. See 178 U.S. at 55.

value is similarly laid upon an incidental power and not upon

ownership, and hence is an excise. Therefore, even if we were

to accept Murphy’s argument that the human capital concept is

reflected in the Sixteenth Amendment, a tax upon the

involuntary conversion of that capital would still be an excise

and not subject to the requirement of apportionment. But see

Nicol, 173 U.S. at 521 (indicating pre-Bromley that tax upon

“every sale made in any place ... is really and practically upon

property”).

 In any event, even if a tax upon the sale of property is a

direct tax upon the property itself, we do not believe Murphy’s

situation involves a tax “upon the sale itself, considered separate

and apart from the place and the circumstances of the sale.” Id.

at 520. Instead, as in Nicol, this tax is more akin to “a duty upon

the facilities made use of and actually employed in the

transaction.” Id. at 519. To be sure, the facility used in Nicol

was a commodities exchange whereas the facility used by

Murphy was the legal system, but that hardly seems a significant

distinction. The tax may be laid upon the proceeds received

when one vindicates a statutory right, but the right is nonetheless

a “creature of law,” which Knowlton identifies as a “privilege”

taxable by excise. 178 U.S. at 55 (right to take property by

inheritance is granted by law and therefore taxable as upon a

privilege);* cf. Steward, 301 U.S. at 580-81 (“[N]atural rights, so

called, are as much subject to taxation as rights of less

importance. An excise is not limited to vocations or activities

that may be prohibited altogether. ... It extends to vocations or

activities pursued as of common right.”) (footnote omitted).

2. Uniformity

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The Congress may not implement an excise tax that is not

“uniform throughout the United States.” U.S.CONST. art. I, § 8,

cl. 1. A “tax is uniform when it operates with the same force

and effect in every place where the subject of it is found.”

United States v. Ptasynski, 462 U.S. 74, 82 (1983) (internal

quotation marks omitted); see also Knowlton, 178 U.S. at 84-86,

106. The tax laid upon an award of damages for a nonphysical

personal injury operates with “the same force and effect”

throughout the United States and therefore satisfies the

requirement of uniformity. 

III. Conclusion

For the foregoing reasons, we conclude (1) Murphy’s

compensatory award was not received on account of personal

physical injuries, and therefore is not exempt from taxation

pursuant to § 104(a)(2) of the IRC; (2) the award is part of her

“gross income,” as defined by § 61 of the IRC; and (3) the tax

upon the award is an excise and not a direct tax subject to the

apportionment requirement of Article I, Section 9 of the

Constitution. The tax is uniform throughout the United States

and therefore passes constitutional muster. The judgment of the

district court is accordingly 

Affirmed.

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