Cecil R. and Carol L. Hawkins - Page 4




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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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