Court Opinion

ID: 4484709
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:16:56.592117+00
Date Added: 2024-06-11T15:03:42.223447
License: Public Domain

Wilbur, J, I respectfully dissent. The majority agrees with respondent that section 104(a)(2) encompasses damages arising from defamation, a conclusion supported by authority but not all that obvious. Assuming section 104(a)(2) excludes damages from defamation, as respondent concedes, then petitioner should prevail even though some or most of the damages are to compensate him for diminished economic opportunity. In this respect I agree with Judge Forrester. Either a physical injury or a defamation of character may inflict damages that include lost wages, reduced earning power, or diminished economic opportunity. Indeed, these elements very often comprise virtually all of the damages. In neither of these actions is a self-employed individual appropriately taxable at ordinary income tax rates in 1 year on damages replacing economic opportunities that — without the injury — would produce earnings over the period of his productive life. Federal tax consequences often flow from, or turn on, the legal characterization of a transaction or cause of action under State law. The majority has reversed the process, characterizing the cause of action under State law in accordance with the misperceived exigencies of Federal tax law. We are cited to no authority in the field of tort law or libel for the bifurcation of a defamation action into categories corresponding to components of damage. A young surgeon who loses a finger will recover damages that for the most part replace future earnings otherwise taxable, but the loss is not bifurcated into its economic and personal components, thereby subjecting the former to taxation. Neither should damages for defamation of character, since defamation is by definition personal to the plaintiff. In both cases, section 104 excludes the damages from income— both the economic and personal components — from income.1  However, the law is clear that punitive or exemplary damages must be included in gross income, and I would so hold. Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955). Punitive damages are certainly not intended to compensate petitioner for a loss within the purview of section 104.1 realize respondent has a revenue ruling that suggests a contrary result. Rev. Rul. 75-45, 1975-1 C.B. 47. Under appropriate circumstances, respondent may be precluded from taking one position in a ruling with respect to taxpayers in general, and a different position in regard to a taxpayer before the Court. Nevertheless, the facts in Rev. Rul. 75-45, supra, are sufficiently different from those herein to permit the surprising but general language of the ruling to be disregarded for now.  The judge’s instructions in Mr. Roemer’s defamation suit were standard ones, incorporating the hornbook rules of defamation. Defamation is an invasion of a "relational interest”— the personal "interest in reputation and good name.” W. Prosser, Law of Torts 754 (West 1964). It is difficult to see how this personal interest may be fragmented into components. A separate cause of action will, of course, lie for certain interferences with commercial or economic relations (i.e., injurious falsehoods — sometimes termed "disparagement of property,” "slander of goods,” and "trade libel” — and interference with contractual relations or prospective advantage). W. Prosser, supra at 938, 939. But defamation is by definition personal to the plaintiff. W. Prosser, supra at 754 et seq. Accordingly, it has been stated: "Pecuniary loss inflicted by interference with the plaintiffs personal reputation already has been encountered in defamation. Because of its ancient, left-handed association with defamation, the kind of interference by falsehoods which are not personally defamatory, and yet cause pecuniary loss, has for some centuries been regarded as a more or less distinct tort in itself. [W. Prosser, supra at 938. Emphasis added.]”