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discrimination claim under Title VII of the Civil Rights Act of
1964 against their employer. The parties eventually reached a
settlement in which the employees would receive varying amounts
based on length of service and rate of pay. The employer
withheld Federal income taxes on the amounts received by the
taxpayers. Id. at 230-231. The taxpayers sought refunds of the
withheld taxes on the ground that the settlement amounts were
excludable under section 104(a)(2) as "damages received * * * on
account of personal injuries or sickness." Id. at 232.
The Supreme Court held that the nature of the claim
underlying the taxpayers' settlement awards controlled the
excludability of the settlements under section 104(a)(2). Id. at
237. The Court noted that Title VII under the 1964 Civil Rights
Act limited "available remedies to backpay, injunctions, and
other equitable relief." Id. at 238. The Court further stated
that
The remedy, correspondingly, consists of restoring victims,
through backpay awards and injunctive relief, to the wage
and employment positions they would have occupied absent the
unlawful discrimination. * * * Nothing in this remedial
scheme purports to recompense a Title VII plaintiff for any
of the other traditional harms associated with personal
injury, such as pain and suffering, emotional distress, harm
to reputation, or other consequential damages * * *
Id. at 239. Since the taxpayers could receive under Title VII
only wages, which they otherwise would have paid taxes upon in
the normal course, the Court held that Title VII did not redress
"a tort-like personal injury within the meaning of section
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