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Certification, as a condition precedent to Alameda’s paying the
$25,000 to petitioner.
Petitioner received the $25,000 in 2003, and Alameda issued
to petitioner a 2003 Form 1099-MISC, Miscellaneous Income,
reporting its payment of that amount to her as nonemployee
compensation. Petitioner did not report the $25,000 on her 2003
Federal income tax return.
Discussion
Respondent determined that the $25,000 is included in
petitioner’s 2003 gross income. Petitioners argue alternatively
that the $25,000 is not “income” in the context of the 16th
Amendment and that the $25,000, if income, is excluded from their
gross income under section 104(a)(2) as damages received for
emotional distress inclusive of mental pain and anguish. In
their posttrial brief, petitioners point the Court to Murphy v.
IRS, 460 F.3d 79 (D.C. Cir. 2006), and assert that the opinion
there controls this case. In Murphy, a panel of the Court of
Appeals for the D.C. Circuit held that section 104(a)(2) violated
the 16th Amendment insofar as it permitted the taxation of an
award of damages for mental distress and loss of reputation. The
opinion reasoned that damages awarded to the taxpayer for mental
pain and anguish were not received in lieu of something normally
taxed as income, nor were they income within the meaning of the
16th Amendment.
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