Jack R. Hawkins, Cynthia J. Hawkins, Husband & Wife v. United States

402, 426, 91 S.Ct. Vоlpe, Inc. v. (1971)). Hawkins, HAWKINS, Cynthia J. R. 28 L.Ed.2d Jack Plaintiffs-Appellees, wife, & husband distinguish attempts majority record agency Aguayo the Aguayo because objections to plaintiffs’ the not included also a memorandum plan, but

the welfare America, UNITED STATES to these responding state prepared Defendant-Appellant. and irrelevant. true This is both objections. 93-15828. similarly respond No. did not Although California agency rec- objections, the appellants’ Appeals, United States on the information extensive include ord does Circuit. Ninth ap- Besides California’s program. proposed Secretary waiver, had plication April 1994. Argued and Submitted mate- appellants’ “voluminous her before program the claimed harms about rials” July Decided Here, Aguayo, the Secre- as in cause. would including informa- tary had sufficient data — sides of supporting both arguments and tion the rele- a consideration dispute —for I would making her decision. vant factors does, that the majority presume, as not materials. ignored these

Secretary simply state from the of a memorandum

The lack materials appellants’ to the

responding presume, as I nothing. would Nor

means infers, record is under- that the Friendly Quoting Judge once developed. require ... does again, “the statute experi- Secretary approves

before every t ment, every i must be dotted Id. at

crossed.”

Further, has held Supreme Court may a decision reviewing “uphold agency’s path clarity if the than ideal

less Motor Vehi reasonably discerned.”

may

cle, at 2867. 463 here. She

Secretary’s path is discernible argu information presented with

was ac waiver. She against

ments granted the position

cepted California’s empowered to re court is This

waiver. certainly It of that the merits decision. view guess nit-pick nor second power to has no in the scheme. policy judgment inhеrent stan- extremely deferential

Because the process con- reviewing agency’s dard case, I need in this

trols decision in the discussed other issues

comment on opinion.

court’s Allen,

Gary R. Perelmuter, Edward T. Tax Div., Justice, Dept, Washington, DC, for defendant-appellant. Whitehead,

Kenneth Phoenix, AZ, J. plaintiffs-appellees. ‍‌​‌​‌‌​​​​​‌‌‌‌​​‌‌‌​​​‌‌​​‌‌​‌​‌​‌‌‌‌​​‌‌​‌‌‌‌​‍GOODWIN, Before FERGUSON

TROTT, Judges. Circuit Opinion by Judge GOODWIN; Dissent Judge TROTT.

GOODWIN, Judge: Circuit government appeals summary judg- granted ment in favor of Cynthia Jack and (“the Hawkins taxpayers”). The district taxpayers’ concluded that the damage award was excludable from “damages income as received ... on account injury.” 104(a)(2). 26 U.S.C. We reverse.

I. undisputed. facts Cyn- thia Hawkins $8,000 crashed the taxpayers’ car, totaling it. Ms. Hawkins and her hus- Hawkinses”) (“the taxpayers’ punitive not exclud- filed a claim with band insurer, Company able Insurance Allstate (“Allstate”), replacement requesting a car. III. the cou allegedly pressured agents

Allstate inferior, expensive less buying into ple gross purposes, For taxation income $6,741, failed and then replacement car “all income from whatever source includes options. certain The equip new car with 61(a). § An 26 U.S.C. accession derived.” good for breach sued Allstate Hawkinses wealth, such the Hawkinses’ (insurance faith), bad dealing fair faith and award, damage presumed to be taxable $15,000 compensato ultimately recovering income, taxpayer can demonstrate unless the in punitive dam ry damages and million $3.5 specific that it into of the Tax fits one Code’s Co., v. Allstate Insurance ages. Hawkins еxemptions. Commissioner v. Glenshaw denied, 1073, 490, Ariz. 733 P.2d cert. 484 152 426, 473, Co., 430, 75 Glass S.Ct. 212, 874, 177 L.Ed.2d (1985). 476, Hawkinses 99 L.Ed. 483 The damage their contend that award provides: § fits into return, income tax 1988 federal On their injuries Compensation § $2,937,406 initially reported Hawkinses sickness income, con- proceeds as the lawsuit [Gjross ... include— ... income does not (less punitive damages at- tending that (2) any damages amount of received costs) taxable, but torneys’ fees (whether by agreement and suit or wheth- $15,000 damages were that periodic payments) lump er as sums or as “damages on account of excludable injuries or personal on account sick- injury or 26 U.S.C. personal sickness.” ness; 104(a)(2). They filed an amended then return, 104(a)(2) (1988) claiming (emphasis add- 26 U.S.C. ed).1 under were also excludable imрlementing regulations define IRS $793,277. The requesting a refund of IRS “through “damages” as amounts received refund, and the Hawkinses disallowed the prosecution legal of a suit or action based in the court. filed refund action district upon tort-type rights.” 26 C.F.R. tort or summary added). judgment, 1.104-l(c) (1993) (emphasis On cross-motions Hawkinses, ruling found for the district court law, agree Arizona parties were excludable. awas tort- bad faith lawsuit Hawkinses’ timely appealed. government action, Apodaca, 151 Ariz. type Rawlings v.

149, 565, Noble Na P.2d Co., 128 tional American Insurance Life II. Ariz. 624 P.2d injuries” “personal light the Hawkinses suffered Viewing in the the evidence conduct. Bates v. party, as a of Allstate’s non-moving result most favorable Arizona, the State Superior whether there de novo determine review County Maricopa, 156 fact and In and For any genuine.issues of material (mental (1988) 1367, 1370 correctly applied Ariz. 749 P.2d the district court whether a result of an insurance distress suffered as law. Stevens v. the relevant substantive Inc., legiti Forms, pay company’s bad faith refusal 18 F.3d Moore Business Cir.1994). injury); (9th qualify mate can presents no claim The ease Co., Lange Ins. summary v. Penn Mutual fact and genuine issues material Life (9th Cir.1988). govern However, F.2d appropriate. judgment was that the Hawkinses’ interpreta ment concedes court’s therefore disagree with the district compensatory damages are “dam- law, and hold that the tion of the relevant income). 104(a)(2). ap- This amendment able from has since amended See 7641(a), July plies 1989 and to amounts received after Stat. 2379 Pub.L. No. (1989) apply does not to the Hawkinses' (providing therefore recov- award. non-physical cases are not exclud- ered in ... on account interpretation rent is more consistent with 104(a)(2). injury.” 104(a)’s purpose, title and as well as with exemptions rule that narrowly must be parties agree also that the Hawkinses’ construed favor of taxation. We therefore compensatory damages completely covers the join several other in concluding courts injuries, including Hawkinses’ actual noncompensato- exclude car, family out-of-pocket two-week loss of the ry punitive damages. See Reese v. Commis $1,000, losses of less than and attendant emo- sioner, (Fed.Cir.1994); Commis tional distress. The Hawkinses concede that sioner Cir.1990); 914 F.2d 586 punitive damage award bears no relation- Estate Wesson v. United ship injuries represents to their pure F.Supp. (S.D.Miss.1994); Kemp v. Com gain. missioner, (N.D.Ga. 771 F.Supp. only dispute puni- is whether the 1991). damages, tive despite tangential their rela- tionship injury, actual are excludable A. 104(a). gross § from income under We must court, Unlike the district we are not con- 104(a) decide whether excludes all dam- vinced “plain meaning” ages lawsuit, only in a tort-like or 104(a)(2) compels exclusion of damages those have compensato- which some Rather, as the Fourth and Feder- ry purpose. government contends that noted, 104(a)(2) al Circuits have “ambig- noncompensatory, damage awards Reese, 230; uous.” 24 F.3d at such as the Hawkinses’ are not received “on “Damages at 589-90. received on ac- personal injuries,” account of but on account personal count injury” mean could all dam- of the egregious tortfeasor’s conduct. In the personal injury lawsuit, recovered government’s view, 104(a)(2) only excludes or, it could mean damages those which damages those purport compensate which purport compensate taxpayer for her taxpayer injuries. for her The Hawkins- personal injuries. Id. Punitive damages es, contrast, that, contend under the 1988 Hawkinses, such as the purport which do not 104(a)(2), version of all damages received to compensate personal inju- excludable, a tort-like regard- lawsuit ries bear no relation to the severi- less of purpose. ty taxpayer’s injuries, of the are not neces- position While the Hawkinses’ sarily draws awarded “on personal inju- of’ account support some rather, from the ry; IRS’s vacillation on they are awarded “on account of’ issue,2 government’s we believe the cur- egregious the tortfeasor’s conduct. Id.3 years, In the last 30 the IRS has twice commendable, reversed make sense of the statute is opinion its on puni whether respectfully disagree. excludes damages tive personal injury awarded in a suit. First, punitive damage even if awards cannot 58-418, Compare (1958) Rev.Rul. 1958-2 C.B. 18 be personal awarded “but injury, phrase for” (punitivеs excludable) awarded in a suit libel "on of” necessarily account mean "but 75-45, (1975) with Rev.Rul. 1975-1 (any C.B. 47 Rather, for causation.” Id. "on account of” damages, punitive, whether or re could mean what the Miller court called "suffi- personal injuries ceived on account or sick cient causation” —i.e. all to which a excludable) ness are and Rev.Rul. 1984- litigant injuries, is entitled because of her but not (1984) (punitive C.B. 32 wrongful in a solely those punish which serve wrong- income). death suit must be included in doer. The Tax consistently Court also has held that "any damages” section's reference to is no punitives are excludable. See Horton v. Commis illuminating. more variety compen- Given sioner, (1993), 100 T.C. ap WL 28557 satory damages available in tort actions—includ- рeal (6th Cir.); pending 93-1929 Miller v. Com ing specific damages, general or damages, actual missioner, 93 T.C. 1989 WL 104238 damages, loss rev’d, consortium ‍‌​‌​‌‌​​​​​‌‌‌‌​​‌‌‌​​​‌‌​​‌‌​‌​‌​‌‌‌‌​​‌‌​‌‌‌‌​‍emotional distress Cir.1990). 914 F.2d 586 damages, "any damages” could indicate an etc.— argues dissent is not am- intent to make all of these various kinds of com- (1) biguous litigant because pensatory damages receive cannot "any” The word excludable. punitive damages not, person- unless she has suffered suggests, does as the necessarily dissent indi- injury; (2) al because the statute refers cate intent an to make excluda- "any damages." attempt While the dissent’s ble. ments, however, nothing about this comment with the Hawkinses’ disagree We also implies as “consis themselves are the case law charactеrization inquiry tently h[olding] Punitive income. of the to an examination of a damages may is limited indicia tort-like injury.” or taxpayer’s being claim nature of of action without themselves cause (citing States v. Appellees Br. at 15 United on account of in- — U.S. -, -, Burke, jury. v. In 119 L.Ed.2d Redfield if did the Court indicate Nor America, 940 F.2d 542 surance Co. North tort-like, underlying cause of action is all Commissioner, (9th Cir.1991); Threlkeld v. damages, regardless purpose, of their (6th Cir.1988)). While these 848 F.2d 81 “agree[d] While the Court with excludable. taxpay of the examine the nature cases did Appeals’ analysis as it Court of insofar or injury to determine whether ers’ claim focused, on purposes damages at issue were recovered not the underlying ... [the nature of the claim tax- injury, they hold that whеn did not — award,” Burke, U.S. at payers’] tort-like, all underlying claim is ever the -, at did damages are excludable. exclusively should look state courts fact, recently Circuit In the Federal underlying the dam- nature of the claim the argument and rejected exact the Hawkinses’ alleged failure age The Court’s to award. Reese, precisely cases. distinguished these requirements for any additional ex- “mention noted, 234. As the Reese court 24 F.3d at 104(a)(2)” little, given § means clusion under only damages awarded un Burke held that taxpayers’ the concluded that the that Court of Title VII were der the 1991 version of underlying cause action was “tort- because the income had no occasion discuss like.” a tort-like con “evidence[] statute did requirements. any such additional — injury remedy.” at ception of and U.S. similarly cases The Hawkinses’ other are -, taxpay 1873. The Burke 112 S.Ct. at 542, Redfield, ad- unpersuasive. 940 F.2d damages, punitive and ers not received had liquidated damages, which dressed ADEA excludability of did not address the the Court punish; compensate and to serve both Rather, punitive the Court men Threlkeld, 81, damages F.2d addressed only the damages because punitive tioned similarly reputation, loss of have availability of Court felt that purpose. Finally, Roemer v. compensatory underly damages the nature of indicates (9th Cir.1983) Commissioner, 716 F.2d 693 ing of action: Since cause Ruling which has relied on a 1975 Revenue traditionally only in are available Miller, 914 F.2d been overruled. See actions, availability since puni- of injury-type basis).4 on this (distinguishing Roemer underlying at 591 suggests that the cause tives arguments, contrary to the Hawkinses’ meaning within the action is “tort-like” gov- 104(a). authority5 argu- controlling contradicts Contrary § dissent’s no Rather, subject.” language think court Finally, on the "[t]he claim that dissent’s 104(a)(2) simply permit appropriately § to the reasonably a distinc- and deferred 104(a)(2), under interpretation tion between IRS’s 104(a)'s title, "Compensa- ages” ignores agency’s interpretation both rule well-settled Sickness,” long- Injury and the tion for unless it is entitled to deference statute standing to be rule that exclusions to income are meaning. plain Sullivan contradicts the statute’s narrowly in of taxation. See 88-89, 960, construed favor Everhart, 83, 494 U.S. v. Bank, v. Centennial Sаvs. 499 U.S. United States 963-65, (1990). do not We dis- 108 L.Ed.2d 1518-19, 573, 583-84, 1512, 111 S.Ct. interpretation pute the dissent's Jacobson, (1991); L.Ed.2d 608 Commissioner reasonable, 104(a)(2) it is com- is 28, 358, (1949). 69 S.Ct. 93 L.Ed. 477 pelled. dissent, we see no evidence contrast Court, however, to hold that continues "independently 5. The Tax re- in the court Roemer excludable, punitive missioner, are Horton Com- Nor the text of the statute.” viewed 93, following 1993 WL 28557 "blindly 100 T.C. accusing the Roemer (6th Cir.). pending, We find the pronouncements appeal 93-1929 Revenue Service’s Internal ernment’s assertion in prove order to indicate that the unamended statute meant excludability Moreover, opposite. Supreme as the (1) must show that the both emphasized, Court has “the views of a subse (2) recovered suit tort-like that the quent Congress form a hazаrdous basis for damages were received on account of the inferring the intent of an earlier one.” Unit personal injury. Price, 304, 313, ed States v. 361 U.S. 80 S.Ct. 326, 332, 4 L.Ed.2d 334 see also The Hawkinses’ reliance on the 1989 —Texas, U.S. -, -, United States ‍‌​‌​‌‌​​​​​‌‌‌‌​​‌‌‌​​​‌‌​​‌‌​‌​‌​‌‌‌‌​​‌‌​‌‌‌‌​‍v. 104(a)(2) amendments to similarly un 4, 113 S.Ct. 1635 n. 123 L.Ed.2d 245 convincing. As the emphasize, Hawkinses (1993). interpretive value of an amend has since amended ment to a statute is provide particularly that the dubious exclusion “shall not apply to where, here, damages in amendment was enacted connection with a long not involving physical original provision. case after the injury Rainwater Budget sickness.” 590, 593, Omnibus Reconciliation 101-239, Act of (1958). Pub.L. No. 2 L.Ed.2d 996 At the Stat. While this amend time proposed amendment, several applies only ment received аfter recently cases had held that ex 10, 1989, July and therefore does not affect cludes recovered in involving cases award, the Hawkinses’ none Hawkinses employment discrimination to rep theless contend that we should read the 1989 utation, Threlkeld, 83-84; 848 F.2d at Roem version of light amend er, and some had even held ment. According Hawkinses, to the Con awarded such cases gress’s decision to amend the exclusion to excludable. 93 T.C. exempt punitive damages received in non- (1989), rev’d, WL 104238 914 F.2d 586 personal injury that, implies cases under the Cir.1990); Roemer, 716 (relying F.2d at 700 previous 104(a), version of such on a 1975 Ruling Revenue which has since damages were excludable —otherwise Con overruled). been Congress That elected to gress would not have amended the statute. overrule such that, cases prove prior disagree. Congress’s action, We to Congress may the statute meant the amend a simply statute clarify opposite.6 Rather, to existing Congress may have law, to correct misinterpretation, a or to amended law simply clarify to existing wrongly Thus, overrule law, decided cases. or to overrule recently these decided amendment to a necessarily statute does not cases.7 arguments persuasive Horton dissent's more out, than correctly points course, 7. The dissent of that majority's. Congress probably did not intend to broaden 104(a)(2) and, drafted, currently the statute fact, legislative history of the 1989 may imply punitive damages that physical Congress amendments that indicates was not injury However, cases are excludable. we do not punitive damages, concerned with but with non- only believe explanation that the consistent physical injury original cases. The House of these facts is that before 1989 all dam- Representatives would have bill made all dam- personal injury received in cases were ex- ages received non-physical injuries on account of Rather, cludable from income. even if the fully 101-247, H.R.Rep. taxable. No. 101st punitive damages amendment makes re- Cong., 1354-55, 1st reprinted Sess. at in 1989 excludable, physical injury ceived in cases this U.S.C.C.A.N.at 2824-25. The decision to implication Or, could be inadvertent. since only punitive Con- address compro- was a gress simply did not address mise reached pass the Senate after to declined received in injury 101-386, cases and House was H.R.Conf.Rep. bill. con- No. primarily cases, Cong., non-physical injury cerned with 101st reprinted 1st Sess. at in may it have "deferring been U.S.C.C.A.N. at to the courts on 3225-26. Even if the amend- Torts, Dodge, issue.” ments indicate Taxes Congress at the time and was Cornell debating issue, (1992). L.Rev. thought No. 143 & that n. 4 Given our applied excluding punitive to compensatory belief that well as is incon- ages; they 104(a)(2)'s do Congress gleaned not indicate that with purpose, sistent title and the true intent previous Congresses, only doubt that intended to exclude Congress was recently noncompensatory punitive However, aware courts had so interprеted the section. opinion express excludability no on the 104(a)(2)’s inju plain compensate intangible both to for lan serve neither excludable); law, punish, Threl and to or recent ries interpretive case

guage, cf. (In keld, noncompensa- 848 F.2d at a defamation suit indicate whether amendments alleging injury reputation, to income in “[a]ll as the Hawkins- tory such compensation not un therefore “look is excludable excludable. We es’ are 104(a)(2)”). statutory language, particular but der as whole and design the statute a to the However, awards, purely punitive such as object policy.” Crandon its and Hawkinses’, compen “are intended to 997, 1001, 152, 158, 110 S.Ct. 494 U.S. injured punish rather party, but sate 108 L.Ed.2d 132 wrongful tort-feasor whose actiоn was malicious, or to deter him and intentional and B. City others from similar extreme conduct.” title, for “Compensation § 104’s Sick- Both Concerts, Inc., Newport v. Fact suggest Injury,” history ness and its 266, 101 2759, 69 L.Ed.2d 616 to exclude was enacted (1981); see also International Bhd. Elec. injuries. compensate taxpayer for Foust, 42, 48, Workers See, Cong., 2d e.g., S.Rep. No. 97th (1979) (“Puni 2121, 2125-26, 60 L.Ed.2d 698 Sess., reprinted in 1982 U.S.C.C.A.N. inju compensation are not tive excluding (describing 104 as certain Instead, they ry. private fines levied have types compensation payments). We juries punish reprehensible conduct civil “[djamages paid previously recognized that occurrence.”) (internal its future deter injuries from are excluded omitted). quotations and citations they make the income because their The Hawkinses do contend that previous loss of whole any compensatory pur- punitive award has effect, they rights—because, in restore a loss They pose concede that whatsoever. Commissioner, capital.” Starrels $15,000 damage com- award (9th Cir.1962); 1 B. see also injuries, including pletely covers their actual Income, Bittker, Estates Federal Taxation of family car, deprivation two-week ¶ (1981) (“The Gifts, rationale 13.1.4 totalling than out-of-pocket losses less their presumably ... recov- $1,000, distress. The emotional gain profit but ery generate does punitives million in additional $3.5 only taxpayer compen- makes the whole had suf- not the Hawkinses awarded because loss”). a sating for injuries Allstate’s severe but because fered justifies excluding the Haw- This rationale injured people. had numerous other conduct compensatory damages. justi- It also kinses’ Hawkins, (upholding 733 P.2d at 1084-85 damages purport excluding awards which fies wealth, pattern of Allstate’s award bécause punish—such as compensate and to both to misconduct, potential harm to and the similar age in dis- liquidated awarded claimants). innumerable F.2d at crimination cases. See 914 policy or admin- (distinguishing Whatever combination of punitive dam- 591 between justifies giving en- compensatory purpose no istrative convenience ages which serve alleged faith proceeds of Allstate’s bad to a tire liquidated damages which serve both distributing it than compensatоry purpose); Ben the Hawkinses—rather deterrent and donating or it States, among other victims 401 Allstate’s nett v. United 30 Fed.Cl. (1994) (in charity—the deserving rationale exclusively noncompen- to the most contrast to (if liquidated any) nothing to do with restoration of has satory punitive damages, ADEA capital. not com- million does compensatory purpose a lost $3.5 have any injury, eco- excludable); Downey Hawkinses for pensate v. Com are therefore nomic, pure a missioner, intangible otherwise. It is 100 T.C. 1993 WL 231740 windfall, (1993) (ADEA to as a much an accession wealth liquidated damages, which dissent, Congress shortly hope will punitive damages received after 1989 cases, up issue. not Like clear as the issue is before us. lottery game observed, “аny a damages” sug- ticket or show win- the Tax Court successful gests damages.” have not “all Miller v. Commission- nings. The Hawkinses been made er, 330, 338, (1989), 93 T.C. whole; litigation WL 104238 they lottery. have won the rev’d, Cir.1990); see also circumstances, In such the restora Commissioner, 93, 95, Horton v. 100 T.C. 104(a) capital underlying ‍‌​‌​‌‌​​​​​‌‌‌‌​​‌‌‌​​​‌‌​​‌‌​‌​‌​‌‌‌‌​​‌‌​‌‌‌‌​‍rationale tion of (1993). Congress 1993WL 28557 If intended simply inapplicable. is We see no valid rea only compensatory to exclude damages from exempt pure gain such son to a Haw- income, certainly could have made taxation, punitive award kinses’ from and we explicit. language that distinction such a doubt intended result.8 simply permit a distinc- Rather, construing narrowly compensatory tion between taxation, exemptions as all favor must be construed, United States Centennial Savs. majority, joining the Fourth and Fed- Bank, 573, 583-84, Circuits, provision ambigu- eral asserts the is 113 L.Ed.2d 608 Commis ous. Reese See F.3d 228 Jacobson, sioner (Fed.Cir.1994); Miller, 914 F.2d at 589-90. exemp L.Ed. we find that the I disagree. majority claims: ‘“Dam- apply tion does to personal injury’ on account relationship injuries, which bear no actual person- could mean all purport compensate do even the victim or, lawsuit, al injury it could mean those losses, rationally for actual and cannot purport compensate anything characterized as but a windfall. injuries.” majori- for such But the Such awards are not received “on account of’ ty passes “any” over the fact that the word personal injuries. precedes “damagеs.” I think the Tax language Court’s judgment conclusion was un- of the district is RE- ambiguous, permitting no distinction between VERSED and case REMANDED to punitive damages, is a the district court with instructions enter sound construction of the statute. See Hor- judgment government. in favor of the ton, 28557; Miller, 100 T.C. at 1993 WL T.C. TROTT, WL 104238. Judge, dissenting: Circuit The Tax Court nearly decisions were unan- Attempting provide some coherence to imous—Miller was 15 to decision and law, majority this muddled area Although Horton was a 16 to 3 decision. following principle: damages offers the review the Tax Court’s conclusions of law de income under novo, proceed cautiously we should when re- they if constitute a restoration of position versing carefully the Tax Court capital. punitive Because are de- accepted by considered and an overwhelming tortfeasor, signed punish compen- majority separate on two occasions. Similar- injured party, sate the con- ly, majority lightly glosses the over our deci- punitive damages are cludes taxable. Al- Commissioner, sion in Roemer v. 716 F.2d though agree I that majority’s the restora- (9th Cir.1983). Roemer, 693 puni- we held capital may tion rule of make sense as a damages tive were excludable “where there policy, matter of I think don’t the text of personal injury.” has a been Id. at 700. 104(a)(2), legislative history, its or the case Roemer, taxpayers clearly Under win this squared law majority’s can be with the inter- case. The contends Roemer no pretation. longer upon cоntrols because the relied A. provides Section that a Ruling 1975 Revenue which has since been income does not include “the of any amount however, Presumably, overruled. the Roem- damages ... personal received on account of independently er court reviewed text of the injuries added). or sickness.” (emphasis blindly As the statute and did not follow the Reese, 8. (emphasizing (extending See also 24 at F.3d F.2d at 590 to "situations 104(a)’s all exemp- that of plaintiff’s other damages enumerated in which a do not serve to "encompass only replacement plaintiff tions the of losses make whole ... runs afoul of the Miller, resulting sickness”); injury purpose.”). from statute’s — 1867, 119 L.Ed.2d U.S. -, 112 S.Ct. pronouncements Service’s Revenue Internal of this method essentially adopted (1992), Furthermore, the Service’s subject. the on in had held 75- Circuit issue, compare Rev.Rul. The Sixth analysis. the on flip-flop not damages (punitive C.B. 1975-1 Burke C.B. 1984-2 taxable) with Rev.Rul. Commissioner, T.C. [v. Threlkeld taxable), undermines damages (punitive 848 F.2d aff'd 1986 WL what really knows it now claim its require Cir.1988) progeny its (6th ] 104(a)(2) means. 104(a)(2), this §of purposes that for the 104(a)(2) requires majority believes The per is the whether court determine (1) damages the both prove the resulting the dam in claim and the sonal (2) the suit in a tort-like recovered were If answer the nature. in ages is tort-like person- of on account received damages were “the affirmative, is then in the is puni- concludes majority then The injury. al The inquiry.” the of end beginning and of on account recеived damages are tive are claim such a resulting from damages compen- they do injury because personal 104(a)(2). under they fully bear excludable nor do injury, personal for sate jur- injuries. Most relationship to actual any Burke of amount however, some isdictions, require Court Cir.1991). Supreme Although the damages punitive damage before actual that Title holding Circuit’s the Sixth reversed 339, 1989 WL T.C. at available. nature, the Court tort-like were claims VII conclude reasonable it’s I think focus Circuit’s Sixth adopted the expressly ac- on damages punitive “We underlying claim: of the nature the on injury because personal of count analy Appeals’ the Court with agree personal thus unless available are not focused, рurposes Therefore, under even insofar sis iiyury occurred. has claim under of the test, the nature on majority’s the be excludable award.” taxpayers’] should injury lawsuit ... lying [the — 104(a)(2). at -, at 1872. Burke, under reasoning test, finesse majority tries to two-part majority’s The Instead B. directly did ap- Court Burke noting Tax adopt by Court’s however, I would ex- damages were whether consider proach: inquiry the Court’s anal import end But beginning cludable. paid on be focus should whether should is clear. ysis This injuries.” “personal Burke underlying on account claim. nature determining inquiry is answered re any additional mention did not Court Once claim. underlying 104(a)(2).1 nature exclusion quirements is estab- claim underlying of the nature Burke way in which another There also injury, as one lished punitive dam- clаim, conclusion supports of that account on gross income. are excluda- damages, ages are including punitive availability of described Court ble. of traditional indicia one 96, 1993 WL Horton, 100 T.C. relied then liability. Id. tort Supreme Court, I believe Tax Like the unavailability of Burke, upon the States opinion United Court’s order, on focused this court previous our In 92-2 in O'Gilvie decision The 1. itself, damage award punitive the the nature (D.Kan.1992), 50,567, ¶ WL USTC underlying claim. of the the nature than rather O’Gilvie, In vein. a similar in construed Burke was Burke, focus our we believe light of In punitive dam- originally held court district opinion Supreme Court's misplaced. The excluda- were not wrongful suit death ages ain pur- inquiry for proper clear makes income, the Fourth relying on blе from 104(a)(2) the nature on is poses of Miller, However, dis- in decision Circuit’s taxpayers' underlying the claim upon reconsider- decision reversed its trict court award. stated: court The Burke. ation after 223847. WL 974-75. Id. in a Title VII case hold that Title gress VII does in thought punitive damages were personal a tort-like redress injury. Id. at 104(a)(2) excluded from by § taxation doesn’t -, at 1873. Supreme necessarily mean that in- concept stated that “the of a ‘tort’ inextri- is tended to encompass punitive cably up remedies,” bound with including punitive damages. at-, Id. 112 S.Ct. at I agree Congress’s interpretation in 1989 punitive n. 7. Because are one may dispositive, not be but certainly primary of the personal indicia of relevant. The majority’s inability to harmon claim, I believe it punitive follows that dam- original ize the statute with the amended ages are received “on personal account of statute troubles me because majority’s injury.” Horton, 99, 100 T.C. at 1993 WL construction peculiar leads to results. I be 28557, otherwise, To conclude majori- as the lieve we must start premise with the does, ty say is to although the availabili- punitive damages received after 1989 cases punitive ty damages makes the claim tort- of physical injury or sickness will be excluda- like, rendering — ble Burke, income. See excludable under punitive at -, 112 S.Ct. at 1871 n. 6 (“Congress damages themselves are unrelated to the 104(a) amended to allow the exclusion of personal injury and should taxable. I am punitive damages only in involving cases reluctant to reach such illogical conclu- ‘physical injury physical ”).3 or My sickness.’ sion. position offers a explanation consistent everyone Because agrees that the Haw- both pre-1989 post-1989 law. Be kinses’ against bad-faith lawsuit 1989, Allstate was punitive fore all damages received in a tort-type claim they and that per- suffered personal injury cases were excludable from injury, sonal I believe the punitive damages gross income. Congress’s After narrowing must be excludable. 1989, the exclusion in only punitive dam ages received in injury cases C. involv The 1989 amendment to 104 further ing physical injury or sickness were supports excluda- my conclusion. The 1989 amend- ble. provided ment ap- “shall not ply to any punitive dаmages in By contrast, connection majority is unable to offer with a case not involving physical injury or a satisfactory explanation of the 1989 amend- physical sickness.” Budget Omnibus Recon- ment. majority suggests that puni- all 1989, ciliation Act of Pub.L. No. tive damages, both 1989, before and after 7641, 2106, Stat. 2379.2 if the must all, be taxable. After Hawkinses recovered just as much of a windfall in a their bad-faith insurance 1989, claim after injury case as nonphysical injury case. damages would be cases, taxable be- both damage award does cause injuries were physi- not compensate injured party any cal. The contend, quite Hawkinses reason- loss—rather designed it’s punish or deter ably, that the amendment suggests puni- all the tortfeasor. Unfortunately, this сonclu- tive damages received before 1989 are not sion means Congress’s 1989 amendment taxable. majority rejects argument. §to 104 had no effect because just believes that because Con- already Moreover, taxable! if 2. The only applies 1989 amendment to "amounts overwhelmingly agree Commentators with this 10, July received after years interpretation taxable of the 1989 amendment. See Ar- ending date,” Andrews, after such thur W. unless amounts were Taxation Title VII Vic- tims Rights “under binding Civil agreement, written Act 46 Tax After (1993); decree, Law. Cochran, Wright (or or Mark mediation award in on effect Compounds 1989 Tax Act before) issued on over Tax July Here, 1989.” Id. Confusion Injury Damages, Status Personal 49 Tax Notes apparently Hawkinses’ payment (1990); Margaret Henning, Recent during thus, the 1989 amendment does not Developments in the Tax Treatment Personal literally Nevertheless, apply. any construction of Injury Recoveries, Damage Punitive 45 Tax should take into Congress’s account Law. Jaeger, David G. Taxation interpretation latest and modification of the stat- Damage Punitive Continuing The Awards: Con- of utory scheme. troversy, (1992). 57 Tax Notes 114 Cochran, WL T.C. punitive clarify that all to wanted Congress 796; supra, 1573; Henning, supra, at amend- taxable, why did the damages were Taxes, Taxes Henry, Torts and J. Robert physical between a distinction create ment Injury Personal Taxation The Torts: and injury eases? of nonphysical (1986). 701, 725 Recoveries, 23 Hous.L.Rev. constru- absurdity of the- avoid way to One the Hawkinses suрpose example, For meaningless amendment ing the and, as a accident in an automobile injured made the amendment argue that be to would they If two weeks. result, work for can’t physical damages awarded punitive two equal to compensatory receive previously when taxable after 1989 eases damages would earnings, lost weeks’ then, nar- of instead But taxable. were they 104(a)(2). But clearly be excludable exclusion, would 104(a)(2) one rowing the whole? than more they made been haven’t actually in- Congress conclude have to those during all, they worked if had After to broaden amendment its tended required weeks, they have been would two that in- think I 104(a)(2) don’t exclusion. of But because wages. on their pаy taxes Congress wanted If is tenable. terpretation if money than more they received injury, simply have exclusion, it could to broaden they had worked. damages in Punitive to read: amended represent damages, can punitive like ages, sickness injury or involving physical cases capital. of ato return in addition windfall do Congress didn’t But are excludable. explain, Furthermore, impossible it’s that.4 why theory, capital the return on based not involve a case does this understand I injury cases physical damages in punitive Howev- award. post-1989 not taxable. after consider we important that er, I think it’s closely re- theory is capital return The cases, subsequent analysis on of our effect If I in tax law. concept of basis tо the lated decid- will be all cases future especially when $150, for it and sell for property buy $100 rule The statute. amended under the ed basis, or My $100 taxable. my gain is representing $50 majority announces — U.S.C. See capital, is not. undoubtedly return be are taxable —will a windfall person’s ais But what §§ 1011-1012. that all proposition support cited body? we Should her own in his or This court basis damages are taxable. spent on money is much how keep track of rendering between chose then have will each body calculate human improp- improving the meaningless or amendment the 1989 im- Obviously, this would basis? expanding person’s amendment construing the erly re- separate can how else but interpretation practical, My exclusion. genеrally See from windfall? capital turn of dilemma. avoids that Friel, Tax K. Michael & Burke J. Martin rationalize tries to majority The D. Personal Employment-Related Treatment of a return of in terms exclusion Limits, 50 Need Injury Awards: simple. theory. I wish capital 13, 42 Mont.L.Rev. a lot more rationale makes majority’s devised, logic some impose has Congress scheme tries than the sense 104(a)(2). Despite the case statute and by the on but we’re bound commonsense more might sow efforts, they I fear law. than clarification. confusion theory been has capital return mess, until but out straighten should explaining as a means widely criticized apply our best do, must do they Downey See, e.g., exclusion. believe as we is written as it 150, 159, statute 1991 WL Commissioner, 97 T.C. cannot contradict We Congress intended. opinion, (1991), supplemental positive manner drafted in have been observed: one 4. As commentator phys- damages received stated section argue that unamended To income. injury are excludable ical mean would exclude the amendment history behind legislative broaden- effect of has the amendment that the limit the was to the intent clearly shows damages re- cover ing the statute to in section language found scope been injury. this had If ceived supra, at 114. Jaeger, likely intent, would Congress’ the amendment plain language statute’s in an effort to ‍‌​‌​‌‌​​​​​‌‌‌‌​​‌‌‌​​​‌‌​​‌‌​‌​‌​‌‌‌‌​​‌‌​‌‌‌‌​‍impose order in the sometimes-chaotie world

of the tax code.

PIT RIVER AND HOME AGRICUL

TURAL COOPERATIVE ASSO

CIATION, Plaintiff,

v. America,

UNITED STATES of Defendant.

PIT RIVER COUNCIL, TRIBAL Cross-

Claimant-Counterclaim-Defendants- Appellees,

v. BABBITT,* Secretary

Bruce of the Interi or, United America, States of Cross -Claim-Defendants-Counterclaim-Defen

dants-Appellees,

v.

PIT RIVER HOME AND AGRICULTUR

AL ASSOCIATION; COOPERATIVE Forrest,

Erin Cross-Claim-Defendants-

Counterclaimants-Appellants,

PIT RIVER HOME AND AGRICULTUR

AL COOPERATIVE ASSOCIATION,

Cross-Claim-Defendants-Appellants.

PIT RIVER COUNCIL, TRIBAL Cross-

Claim-Defendant-Appellant,

PIT RIVER HOME AND AGRICULTUR

AL ASSOCIATION; COOPERATIVE Forrest, Erin Cross-Claim-Defendants-

Appellees.

Nos. 99-16590.

United States Court of Appeals,

Ninth Circuit.

Argued April Submitted

Decided July * Bruce Babbitt is predecessor substituted for his Fed.R.App.P.Rule suant to 43(c)(1). Jr., Lujan, Manuel Interior, Secretary of the pur-

Case Details

Case Name: Jack R. Hawkins, Cynthia J. Hawkins, Husband & Wife v. United States

Court Name: Court of Appeals for the Ninth Circuit

Date Published: Jul 19, 1994

Citation: 30 F.3d 1077

Docket Number: 93-15828

Court Abbreviation: 9th Cir.