O'Gilvie v. United States, 519 U.S. 79, 3 (1996)

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OCTOBER TERM, 1996

Syllabus

O'GILVIE et al., MINORS v. UNITED STATES

certiorari to the united states court of appeals for the tenth circuit

No. 95-966. Argued October 9, 1996—Decided December 10, 1996*

Petitioners, the husband and two children of a woman who died of toxic shock syndrome, received a jury award of $1,525,000 actual damages and $10 million punitive damages in a tort suit based on Kansas law against the maker of the product that caused decedent's death. They paid federal income tax insofar as the award's proceeds represented punitive damages, but immediately sought a refund. Procedurally speaking, this litigation represents the consolidation of two cases brought in the same Federal District Court: the husband's suit against the Government for a refund, and the Government's suit against the children to recover the refund that the Government had made to the children earlier. The District Court found for petitioners under 26 U. S. C. 104(a)(2), which, as it read in 1988, excluded from "gross income" the "amount of any damages received . . . on account of personal injuries or sickness." (Emphasis added.) The court held on the merits that the italicized language includes punitive damages, thereby excluding such damages from gross income. The Tenth Circuit reversed, holding that the exclusionary provision does not cover punitive damages.

Held: 1. Petitioners' punitive damages were not received "on account of" personal injuries; hence the gross-income-exclusion provision does not apply and the damages are taxable. Pp. 82-90. (a) Although the phrase "on account of" does not unambiguously define itself, several factors prompt this Court to agree with the Government when it interprets the exclusionary provision to apply to those personal injury lawsuit damages that were awarded by reason of, or because of, the personal injuries, and not to punitive damages that do not compensate injury, but are private fines levied by civil juries to punish reprehensible conduct and to deter its future occurrence. For one thing, the Government's interpretation gives the phrase "on account of" a meaning consistent with the dictionary definition. More important, in Commissioner v. Schleier, 515 U. S. 323, this Court came close to resolving the statute's ambiguity in the Government's favor when it

*Together with No. 95-977, O'Gilvie v. United States, also on certiorari to the same court.

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