Whistleblower Lawyer & Attorney : National Whistleblower Legal Defense and Education Fund : Whistleblower Protection, Fraud Claims : Washington DC

When whistleblowers win their cases, it is often years after they got fired.  When a judge adds up all the years of back pay, the whistleblower will then have to pay taxes from a higher tax bracket. Whistleblowers can end up getting less than what would have happened had they never been fired.

Last month, the federal Third Circuit Court of Appeals recognized this problem and allowed a court to increase a plaintiff's award to compensate for the negative tax consequence of getting back pay in a lump sum.  The decision is Eshelman v. Agere Systems, Inc., No. 05-4895 (3d Cir. Jan. 30, 2009). The decision highlights the need for the Civil Rights Tax Relief Act.

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Back in April, when the Supreme Court denied certiorari for Murphy v. IRS, a lot of people were upset. Whistleblowers and other civil rights leaders knew that the DC Court of Appeals' terrible opinion (ruling that the 16th Amendment of the Constitution gives government the power to tax court-awarded compensatory damages as if they were income) was a slap in the face to victims of discrimination. We knew that this ruling would be a disincentive for people to blow the whistle or report civil rights violations.

We are finding out that we aren't the only ones who disagreed with the decision. There are a lot of scholars out there who feel that income tax itself is illegal under the Sixteenth Amendment, and they are speaking up as well. One of these individuals is a state representative from Ohio named Phil Hart, who wrote this article on the Murphy decision. Although Mr. Hart disagrees with the DC court for different reasons than the whistleblower/civil rights community, his article rightly points out how the "Murphy Court" disgracefully bowed to political pressure when they flip-flopped from their original decision (which was in favor of Ms. Murphy) to a more pro-government stance. 

 

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Although the Supreme Court refused to hear the case of Murphy v. IRS, the fight is not over! The National Whistleblower Center has issued this Action Alert, urging all supporters to email their Senators and Representatives and tell them to support the Civil Rights Tax Relief Act of 2007.

Click here for more info>>

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In an order posted today on the its website, the U.S. Supreme Court announced that it will not be hearing the Murphy v. IRS appeal. Although this is a disappointing turn of events, whistleblower and civil rights advocates should continue the fight for tax justice, both in other judicial venues, and in the halls of Congress.  

In response to the news, the National Whistleblower Center put out the following press release:

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The Supreme Court Justices were scheduled to have a conference this morning to rule on petitions for certiorari, including in the case of Murphy v. IRS.

We will keep you updated on any developments.

UPDATE: We just received word that the results of the conference will not be revealed until Monday morning. We will let you know as soon as we find out. Check back after the weekend!

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The Supreme Court has distributed the Murphy v. IRS case for the Conference to be held on April 18, 2008. The Justices of the Supreme Court will decide on that date whether or not to grant the petition for certiorari filed on behalf of Ms. Murphy. It takes 4 votes to grant a petition.


Keep checking back (or sign up for our RSS feeds) for updates on this issue.

• Official Court Docket for Murphy v. IRS
• More Blog Posts on Murphy v. IRS

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Attorneys working with the National Whistleblower Center have filed the reply brief in response to the Solicitor General’s brief regarding whether certiorari should be granted in a key Whistleblower/Civil Rights tax case that was filed with the Supreme Court by attorneys. The case is Murphy v. IRS, No. 07-802 (Supreme Court).


Click here to view the brief (PDF)>>>


The principal issue is whether the IRS can tax as “income” plaintiffs' court awards for non-physical compensatory damages, such as “make whole” awards for emotional distress and loss of reputation. Continue Reading...

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The Solicitor General has filed the Government’s brief in opposition to the granting of certiorari in a key Whistleblower/Civil Rights tax case that was filed with the Supreme Court by attorneys working with the National Whistleblower Center.  The case is Murphy v. IRS, No. 07-802 (Supreme Court).


The principal issue is whether the IRS can tax as “income” plaintiffs' court awards for non-physical compensatory damages, such as “make whole” awards for emotional distress and loss of reputation.
The case was brought by Marrita Murphy, an environmental whistleblower who won before the Department of Labor, and was awarded only compensatory damages to vindicate her rights under six federal environmental whistleblower statutes, and none of her damages were for lost wages. Murphy filed a tax refund suit when the IRS demanded that she pay taxes on the "make-whole" award.


In its brief, the Government argues that it may tax “make whole” damages to restore personal injury losses for emotional distress and damage to reputation.  However, such damages were never considered income or taxed prior to 1996, and Congress has not changed the gross income statute or enacted any tax levying statute to specifically tax compensatory damages.  The Government’s argument essentially equates “make whole” compensatory damages for personal injury losses to lottery winnings or windfalls, and ignores that damages for personal injury are not income.


The ruling in Murphy v. IRS will affect thousands of past and future victims of civil rights violations and whistleblower retaliation who are awarded compensatory damages for personal injuries.

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Today we learned that the U.S. Government will receive a 30 day extension from the U.S. Supreme Court to file their reply brief in Murphy v. IRS (More on Murphy v. IRS here).  This is the Solicitor's second 30 day extension, giving the government until March 17th to file the brief. Maybe they are banking on the luck of the Irish...or possibly they haven't been able to make sense of the Appeals court's decision yet either...

We will keep you posted. 

• For more on the Murphy v. IRS Supreme Court case, click here>>

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Last month we reported on a key Whistleblower/Civil Rights tax case that was filed with the Supreme Court by attorneys working with the National Whistleblower Center. See Whistleblowers Blog (December 13, 2007). The case is Murphy v. IRS, No. 07-802 (Supreme Court), and the principal issue is whether the IRS can tax as income plaintiffs' court awards for non-physical compensatory damages, such as make whole awards for emotional distress and loss of reputation.


Since the petition for a writ of certiorari was filed on December 13, 2007, the Solicitor General has requested and received an extension of the time for the government to file a response to Ms. Murphy's cert petition. A copy of the Solicitor General's request is available here, and a copy of the order granting the request is here.


**Also, a brief update on the status of the case was reported in today's Wall Street Journal.

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