# Amicus Curiae Brief — United States v. Burke > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385013_0167%3A10 ## Record - **Collection:** Supreme Court brief - **Document type:** Amicus Curiae Brief - **Published:** January 1, 1992 - **Citation:** 504 U.S. 229 ## Text ; ' \ ”“ ‘ ’ * ° ; - ‘ “ / ; ° 4 e ‘ i , - ‘ - - - ; +. «a “ee an a " + ; ’ ‘ ‘ i a re } . i i Pa 4, «| ‘ 9 9 * Siew ! ¢ | ; ' a 3 ° | : ' : : j . . . ' 6 ( i | . wi ~ 4 ** j ‘ ~~ : 4 % oF as | Bt . by thy tres TABLE OF CONTENTS STATEMENT OF INTEREST ..............ccccccccccseessseeees BEATERS OF PACTS ...ccsccccsccscccccscccssssccscessssscees INTRODUCTION: THE STATUTE AND TENTED. deitisiaidisincesinitesierlenesicieininintsitnnetmnentienssaee I. II. IT]. IV. “PERSONAL INJURIES” IN THE SENSE OF SECTION 104(A\X2) INCLUDE NONPHYSICAL INJURIES AS WELL AS PHYSICAL SUUUPTIID ‘sesccsinisissisdisielicasiticiiideitibaiindinatatriaeiieatinninaen DISCRIMINATION IN VIOLATION OF TITLE VII RESULTS IN “PERSONAL INJURIES,” AND A SETTLEMENT AWARD ON A CLAIM OF SUCH DISCRIMINATION IS RECEIVED ON ACCOUNT OF PERSONAL INJURIES ..... “DAMAGES RECEIVED” IN THE SENSE OF SECTION 104(AX2) INCLUDE ANY MONE. TARY AWARD RECEIVED ON ACCOUNT OF PERSONAL INJURIES ............ccccccccsssscsssssceee, GOVERNMENT THEORIZING ABOUT “PER. SONAL CAPITAL” OR “HUMAN CAPITAL,” “ECONOMIC BENEFITS,” “ACCESSIONS TO WEALTH” OR “ENHANCEMENTS OF WEALTH” IS MISDIRECTED AND PRO.- VIDES NO BASIS FOR LIMITING THE EX. CLUSION PROVIDED BY SECTION DUMEIEEIED vesecesonccccessosenousdecsncuscusseetesecocscsececeseees ~] 1] TABLE OF AUTHORITIES Cases: Page Bent v. Commissioner, 87 T.C. 236 (1986), affd, GL £S £8 2 EEE +) Church v. Commissioner, 80 T.C. 1104 (1983) ...... i) Coleman v. Commissioner, 791 F.2d 68 (7th Cir. ’ DE. ...cccecoeseccccetucenesisaniicnssmensieiaannaaaal 15,16 Commissioner v. Glenshaw Glass Co., 348 U.S. 426 ; | | ae 14,15 Dizon v. United States, 381 U.S. 68 (1965) .......... 18 Downey v. Commissioner, 97 T.C. 150 (1991) ..... 910,19 Granzow v. Commissioner, 739 F.2d 265 (7th Cir. ; RED .....cocceccecencanscocesusentsccuncusenensseneesaaaaaannat 16 Helvering v. Clifford, 309 U.S. 331 (1940) ............ 14 Langley v. Colonial Leasing Co. of New England, ae O80 £2 Ss wees 13 Lonsdale v. Commissioner, 661 F.2d 71 (5th Cir. BOE)... ccencevccnniensnmennnentienemmummnealaaaeaan 16 Lovell v. United States, 755 F.2d 517 (7th Cir. RED ..cccccoccecccessuccesnsenneesensunuaiunennsnenenenennannannna 16 Medtronic. Inc. v. Intermedics, Inc., 725 F.2d 440 , SS 12 Metzger v. Commissioner, 88 T.C. 834 (1987), aff'd without published opinion, 845 F.2d 1013 (3d + 2 ee ee ) Norfolk & Western R. Co. v. Liepelt, 444 U.S. 490 "BGI niccsenninnitilitsimanae 8 Pistillo v. Commissioner, 912 F.2d 145 (6th Cir. ROBE cecccecececesesesitintitccseensoneneenennnsnnesanaaainaan 9,10 Price Waterhouse v. Hopkins, 490 U.S. 228 (RGD ceecececancscesstessesanestnseaneeen 10,11 Rickel v. Commissioner, 900 F.2d 655 (3rd Cir. ROOD .ccccccconscsscocncensbansinseunecsieiasainaennenae 9,10 il Table of Authorities Continued Page Roemer v. Commissioner, 716 F.2d 693 (9th Cir. TESS TED SS oO TE ) Seay v. Commissioner, 58 T.C. 32 (1972) .............. 9 Sparrow v. Commissioner, No. 90-1151 (D.C. Cir. EE SS 6,11,12 Stubbs, Overbeck & Associates, Inc. v. United States, 445 F.2d 1142 (5th Cir. 1971) .0...0.......cccccccc.. 18 United States v. Kolibski, 732 F.2d 1328 (7th Cir. FE EE PETES SS 16 United States v. Thomas, 788 F.2d 1250 (7th Cir.), cert. denied, 479 U.S. 853 (1986), appeal of remand, 934 F.2d 840 (7th Cir. 1991) ........... 16 Statutes: Civil Rights Act of 1964, Title VII, 42 U.S.C. a csisesseouveccs 2,passim es cccueswncecceccess 14 Omnibus Budget Reconciliation Act of 1989, Pub. L. No. 101-239, § 7641(a), 103 Stat. 2379 a cnpeuccecenersccss 13 Revenue Act of 1918, ch. 18, § 213(b\6) ............. 13 Internal Revenue Code: a seccnuccncccerecoeses 14,17 es cnppopnmanccceeencs 15 ee cncomecceucnseceoss 7 Cee ccmocneceececaes 13 Nee ee ccccocueusenens 3,passim Ne snndbuuoaoeeces 3 Regulations: . Treas. Regs. § 1.104-1(c) ..........cccccccsesccccescesssseeeeeee 8,11 Table of Authorities Continued Page Revenue Rulings: Revenue Ruling 72-341, 1972-2 C.B. 32 .....ceee 17 Miscellaneous: Federal Rules of Civil Procedure, Rules 1 and 2 . ll Griswold. Cases and Materials on Federal Taxation CEE: OM, BORED cocccvectvocenccinsstansussssseceidaanmisebuontns IN THE Supreme Court of the Gnited States OCTOBER TERM, 1991 No. 91-42 UNITED STATES OF AMERICA, Petitioner, Vv. THERESE A. BURKE, ET AL., Respondents. ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT BRIEF OF THE NATIONAL WOMEN’S LAW CENTER, AS AMICUS CURIAE IN SUPPORT OF RESPONDENTS Pursuant to Rule 37 of the Rules of this Court, the National Women’s Law Center files this brief amicus curvae in the above-entitled case. The brief supports the position of the respondents and urges affirmance of the decision of the Court of Appeals below: The National Women’s Law Center has filed with the Clerk of the Court the written consents of the parties to the case. STATEMENT OF INTEREST The National Women’s Law Center (‘“NWLC’’) is a non-profit legal advocacy organization dedicated to to the advancement and protection of women’s rights and the corresponding elimination of sex discrimina- tion from all facets of American life. Since 1972, NWLC has worked to secure equal opportunity in the workplace through the full enforcement of Title VII of the Civil Rights Act of 1964, as amended, and other civil rights statutes. Our interest in the instant case is based on our particular and long standing interest in assuring effective remedies for discrimi- nation against women and minorities. STATEMENT OF FACTS The facts of the case are fully stated in the opinion of the Court of Appeals below and by the parties. Of particular importance, the Title VII' discrimination action brought by the respondents was settled by the payment of $5,000,000, to be distributed according to a formula which took into account length of service and rates of pay of the female employees who were represented in the action. However, there was no attempt to calculate specific awards of “‘back pay’’ which would equalize the aggregate wages or salaries received by female employees to those of male coun- terparts in the same wage or salary classifications. Female employees had been paid for past services the full amount of wages or salary due by contract with TVA. The settlement proceeds were redress for acts of discrimination in violation of federal statute. and were not based on contract claims. ' Title VII of the Civil Rights Act of 1964, 42 U.S.C. &§ 2000e et seq., as amended, hereinafter ‘Title VII’. SUMMARY OF ARGUMENT The issue here is whether the settlement proceeds of a Title VII discrimination suit are excludable from federal income taxation under the terms of section 104(a)(2) of the Internal Revenue Code.? That section excludes from taxable income the amount of any dam- ages received (whether by suit or agreement) on ac- count of personal injuries or sickness (except punitive damages in a case not involving physical injury or physical sickness). In determining whether the amount received by suit or agreement is on account of per- sonal injury, the pertinent Treasury regulation states that the term ‘“‘damages received’ means an amount received through prosecution of a legal suit or action based upon tort or tort-type rights or through a set- tlement agreement entered into in lieu of such pros- ecution. The judicial decisions under section 104(a\(2) make it clear that personal injuries include intangible (other than physical or bodily) injuries to the person, in- cluding violations of constitutional rights, defamation, and various statutory provisions protecting personal rights. Thus, the Court of Appeals below held that amounts received in a Title VII action by way of settlement of a gender-based discrimination suit are not taxable under section 104(a)(2). This conclusion follows from the view that gender-based discrimina- tion is a personal injury not only resulting in economic inferiority but damaging to intangible personal status, self esteem, morale, and career prospects, i.e., overall personally demeaning. Accordingly, an employer’s vi- * Unless otherwise noted, all references are to the Internal Revenue Code of 1986, as amended. 26 U.S.C. §§ 1 et seq. olation of Title VII standards results in a tort-type injury, monetary redress for which is excluded from taxable income. The petitioner (the ““Government’’) does not appear in its brief to attack the conclusion that tort-like per- sonal injuries include intangible and statutory (Title VII) personal injuries. The Government has argued for a non-statutory, non-regulation distinction be- tween “‘economic’”’ recoveries and recoveries for in- jury to “personal capital’ and “human capital,” meaning harm to bodily parts. Not only does this distinction have no support in the statute or regulations, but it also makes no real sense and would arbitrarily whittle down the exclusion of section 104(a)(2). It is simply an attempt to revive a long-abandoned Government position limiting sec- tion 104(a\(2) to recoveries for injuries to bodily parts. The concept of “personal capital” or “human capital”’ has no support in the tax law, which does not rec- ognize a tax basis for gain or loss or for depreciation or amortization of this alleged human or personal cap- ital. Moreover, even if the notion had some scintilla of tax validity, the Government argument reflects a very strange view of human beings as a collection of purely physical components, with no sensibilities, no personality, no hopes and fears, no self esteem, and none of those elements that make a human being complete. These intangible elements are plainly also a part of “personal capital,” if such a concept is to be tax-cognizable. Furthermore, the alleged contrast between ‘“‘eco- nomic” recoveries for intangible injuries as “‘acces- sions to” or “enhancements” of wealth, and recoveries for injury to personal or human capital as non-acces- ** ul ’ sions to or non-enhancements of wealth is an absurd fiction. To illustrate, by virtue of an accident caused by negligence, a secretary may lose the use of her arms for a while. Nevertheless, redress therefor, measured by lost wages, is an “‘economic’’ recovery. If, by virtue of defamation, a person sustains injury to his or her professional reputation, an award for redress of the defamation, measured by loss of in- come, is also an ‘“‘economic benefit.”” If a person re- covers money damages for interference’ with contractual relationships, once more the recovery, which may be basically measured by loss of income, is an “economic benefit.”” Finally, if a female em- ployee is the victim of invidious and prohibited dis- crimination, a monetary award as a remedy for this personal injury is an “‘economic”’ benefit in the same sense as the foregoing examples. Simply put, where money is recovered for personal injuries, the money is an “economic’’ benefit. The Government attempts further to argue that the money received in this case would have been taxable if it had been received as additional wages for past periods. Therefore, it ought to be taxable now. This analysis is basically defective. As the facts of this case establish, the settlement amounts received were not equal to and did not have the same effects as ‘back pay’. Moreover, they were paid on account of the personal injury of discrimination. The measure of damages for the injuries should not be confused with the nature of the claim. The victims of discrimination did not sue because they were shortchanged by their employer; they sued because discrimination, with all of its concomitants, was illegal and gave rise to per- sonal injuries. Although the Government brief does not argue about the term ‘“‘damages,”’ the Court of Appeals for the D.C. Circuit has very recently held in Sparrow v. Commissioner, No. 90-1151 (Nov. 26, 1991), that an award pursuant to a Title VII action does not constitute ‘damages’ under section 104(a)(2) because Title VII involves only ‘“‘equitable’’ remedies under historic distinctions between law and equity. This strained and strange analysis ignores that for nu- merous purposes of jurisdiction and procedure the dis- tinction between law and equity disappeared decades ago. Moreover, federal statutory provisions are not the work of a chancellor in equity. Importantly, the Court of Appeals opinion and decision totally ignores the so-called clean-up doctrine pursuant to which courts of equity have always been able to provide for “damages at law” as a supplement to traditional eq- uitable relief. Finally and decisively, as the Treasury regulations to section 104(a\2) make clear, all mon- etary amounts received for personal injuries are ex- cludable as ‘“‘damages’’ from income. Whatever casuistries have been advanced in the at- tempt to defeat the tax exclusion provided for in sec- tion 104(a\(2), the language of that section and the Treasury regulations governs the case before this Court, and it is clear that the section applies to this case. If the executive and judicial branches of Gov- ernment feel that the section 104(a\2) exclusion is overbroad and reflects unsound policy, the remedy lies with neither the executive branch nor the courts, and certainly not in statutory construction by legerde- main. Rather, the appropriate remedy is to seek pos- sible limiting provisions in the statute through Congressional action. ~ ARGUMENT INTRODUCTION: THE STATUTE AND REGULATIONS The starting point for analysis of an income tax issue is the statute itself, i.e., the pertinent Internal Revenue Code provision. As a former Solicitor Gen- eral of the United States and distinguished law pro- fessor observed long ago, “There is no use in thinking great thoughts about a tax problem unless the thoughts are firmly based on the controlling statute.”’ Griswold, Cases and Materials on Federal Taxation, at 15 (4th ed. 1954). The pertinent statutory provision is contained in section 104 of the Internal Revenue Code, providing as follows: (a) In General. - Except in the case of amounts attributable to (and not in excess of) deductions allowed under section 213 (relating to medical, etc., expenses) for any prior taxable year, gross income does not include — *_* * (2) the amount of any damages received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal injuries or sickness; -_* * ... Paragraph (2) shall not apply to any pu- nitive damages in connection with a case not involving physical injury »r physical sickness. *~* * To the extent that Treasury regulations are not inconsistent with the statute itself, they also have binding legal effect. Pertinently here, the regulations provide — Damages received on account of personal in- juries or sickness. - Section 104(a)(2) excludes from gross income the amount of any dam- ages received (whether by suit or agreement) on account of personal injuries or sickness. The term “‘damages received (whether by suit or agreement)’ means an amount received (other than workmen’s compensation) through prosecution of a legal suit or action based upon tort or tort type rights, or through a settlement agreement entered into in lieu of such prosecution. Treas. Regs. § 1.104-1(c). The statute and the Treasury regulations do not warrant or reflect the “great thoughts’ which the Government has offered in its brief. As Justice Black- mun has observed, the purpose of section 104(a)(2) may well be simply ‘‘to confer a humanitarian benefit on the victim or victims of tort,” referring to a Dis- trict Court opinion which noted that the statute was ‘intended to relieve a taxpayer who has the misfor- tune to become ill or injured.” Norfolk & Western R. Co. v. Liepelt, 444 U.S. 490, 501 (1980) (Blackmun, J., dissenting). I. “PERSONAL INJURIES” IN THE SENSE OF SEC- TION 104(a)(2) INCLUDE NON-PHYSICAL INJURIES AS WELL AS PHYSICAL INJURIES Without exception as far as we know, the courts have recognized that the term “personal injuries” in- 9 cludes intangible injuries as well as bodily or physical injuries. See, e.g., Bent v. Commissioner, 87 T.C. 236 (1986), affd, 835 F.2d 67 (3d Cir. 1987) (violation of First Amendment rights); Church v. Commissioner, 80 T.C. 1104 (1983) (libel suit); Seay v. Commissioner, 58 T.C. 32 (1972) (injury to reputation); Metzger v. Commissioner, 88 T.C. 834 (1987), aff'd without pub- lished opinion, 845 F.2d 1013 (3d Cir. 1988) (gender and national origin d‘scrimination); Downey v. Com- missioner, 97 T.C. 150 (1991) (violation of ADEA): Roemer v. Commissioner, 716 F.2d 693 (9th Cir. 1983), rev’g 79 T.C. 398 (1982) (defamation); Rickel v. Commissioner, 900 F.2d 655 (8d Cir. 1990), affg in part and rev’g in part 92 T.C. 510 (1989) (violation of ADEA). A detailed analysis of the concept of ‘‘per- sonal injuries’ appears in the recent opinion in Dow- ney v. Commissioner, 97 T.C. 150, 157-64 (1991), as well as in the opinion below in this case. II. DISCRIMINATION IN VIOLATION OF TITLE VII RE- SULTS IN “PERSONAL INJURIES,” AND A SET- TLEMENT AWARD ON A CLAIM OF SUCH DISCRIMINATION IS RECEIVED ON ACCOUNT OF PERSONAL INJURIES The opinion of the Court below concluded that dis- crimination in violation of Title VII undoubtedly re- sulted in personal injuries. This followed the view of that same Court of Appeals in Pistillo v. Commis- stoner, 912 F.2d 145 (6th Cir. 1990), rev’g 57 T.C.M. (CCH) 874 (1989), that discrimination in violation of the ADEA gave rise to personal injuries. The Court of Appeals for the Third Circuit has also held that age discrimination resulted in personal injuries. Rickel v. Commissioner, 900 F.2d 655 (3d Cir. 1990), affg in part and rev’g in part 92 T.C. 510 (1989). 10 The Tax Court in the Rickel and Pistillo cases had denied an exclusion for back pay awards on the ground that the damages received, or part of the damages, were similar to damages for breach of con- tract and, in any event, were substitutes for taxable income. However, after the Courts of Appeal reversed these analyses and conclusions, the Tax Court in Dow- ney v. Commissioner, 97 T.C. 150, 168-70 (1991), ex- plicitly overruled its own decisions in the Rickel and Pistillo cases, on the ground that both the Tax Court previously and the Commissioner had confused the nature of discrimination claims with the consequences of the injury and with the nature of relief requested by taxpayers: We recognize that petitioner’s recovery here of lost wages is similar to a recovery petitioner might have received in settlement of a contract claim. The record, though, con- tains no evidence that petitioner had any sep- arate contractual claim .... requesting lost wages as relief; and we have found that petitioner received the amount at issue in settlement of the ADEA claim, not any other claim. Petitioners, thus, were entitled to ex- clude under section 104(a\2) the nonliqui- dated damages received in settlement of the ADEA claim. 97 T.C. at 169-70. Focusing particularly on Title VII which was the basis for the settlement award here, the purposes of the Title, as stated by Justice O’Connor, are ‘‘to deter conduct which has been identified as contrary to pub- lic policy and harmful to society as a whole,” as well as to make persons whole for the injury suffered on account of discrimination. Price Waterhouse v. Hop- 1] kins, 490 U.S. 228, 264 (1989) (O’Connor, J., con- curring). We do not understand that the Government has contended in its brief that Title VII does not involve tort or tort type rights giving rise to personal injury; rather, in a convoluted way, the Government argues that a “‘back pay’”’ award, which might have been paid as additional taxable wages if the employer had not engaged in discrimination, ought to be taxable just as such wages would be, notwithstanding section 104(aX2). This contention is specifically considered be- low (pages 17-19, infra). III. “DAMAGES RECEIVED” IN THE SENSE OF SEC- TION 104(a)(2) INCLUDE ANY MONETARY AWARD RECEIVED ON ACCOUNT OF PERSONAL INJU- RIES The Treasury regulations define ‘damages re- ceived” as amounts received through a legal suit or settlement agreement based upon tort or tort type rights. Treas. Regs. § 1.104-l(c). Obviously the ref- erence to a legal suit is not an effort to distinguish between actions at law or actions at equity. The plain meaning is an action brought in a court. See Federal Rules of Civil Procedure, Rules 1 and 2. Although the Government brief does not appear to dispute that ‘‘damages’’ were received in the case before the Court, the Court of Appeals for the D.C. Circuit has recently made this an issue. That Court of Appeals held in Sparrow v. Commissioner, No. 90- 1151 (Nov. 26, 1991), that because Title VII is in- tended to provide equitable relief, and ‘‘damages”’ are historically a remedy at law, an amount received in a Title VII action for discrimination cannot be ‘‘dam- ages’’ within the meaning of section 104(a)2). 12 — The decision in Sparrow is unique, as far as we know, in holding that an amount received for the personal injuries resulting from discrimination does not qualify as “damages.” This belated new reading of section 104(a\(2) has no basis. First, Title VII is not the creation of a chancellor in equity; it is part of a federal statute which reflects a Congressionally-created offense or violation, sets forth procedures, and sets forth remedies. The statute may have equitable overtones in its provisions for injunctive relief, but it is not a branch of equity jur- isprudence. Second, although the Court in the Sparrow case correctly noted that “damages” historically were a remedy at law, the Court wrongly concluded that “damages” therefore were not available in equity. Traditionally, courts of equity were not limited to so- called equitable remedies, and frequently applied the equitable clean-up doctrine to award “damages at law” in addition to “equitable” relief. The Court of Appeals in Medtronic, Inc. v. Intermedics, Inc., 725 F.2d 440 (7th Cir. 1984), has focused on this historical power of equity courts: A suit seeking a mixture of legal and eq- uitable relief could have been brought then, if at all, only in an equity court. A law court could not give equitable relief, incidental or otherwise, while a plaintiff in equity could ask the equity court to grant him legal as well as equitable relief—for example, dam- ages as well as an injunction—under the eq- uity clean-up doctrine. 725 F.2d at 442 (emphasis added), citing 1 Pomeroy, A Treatise on Equity Jurisprudence, §§ 236-41 13 (1881); Wright v. Scotton, 13 Del. Ch. 402, 417-18, 121 A. 69, 76 (Del. Super. Ct. 1923); Dawson & Pal- mer, Cases on Restitution, 146-51 (2d ed. 1969). See also Langley v. Colonial Leasing Co. of New England, 707 F.2d 1, 6 (1st Cir. 1983) (‘‘Given the claims for rescission, a chancellor would have had jurisdiction over Langley’s whole suit against Major, including the claims for damages at law, under the so-called eq- uitable clean-up doctrine.’’). Thus, while it is true that courts of law could not order the remedies exclusively available in courts of equity, courts of law had no monopoly on the awarding of damages. Third, section 104(a)(2), as originally enacted, clearly contemplated that all recoveries for personal injuries, whether through insurance or otherwise, and not just through an award of ‘“‘damages,”’ were excluded from income. Section 213(b)\(6) of the Revenue Act of 1918 first enacted, in a single provision, the income exclu- sions now contained in sections 104(a)(1) through (3) of the Code. It therefore appears that in this legis- lation Congress intended generally that recoveries for personal injuries be excludable from income. Fourth, as limited by the 1989 amendment to sec- tion 104(a)(2),? the only personal injury recoveries not excludable from income for tax purposes are punitive damages, and then only in a case that does not in- volve a physical injury. Accordingly, with this sole exception delineated by the Congress, all recoveries * Section 104 was amended by the Omnibus Budget Reconcil- iation Act of 1989, Pub. L. No. 101-239, § 7641(a), 103 Stat. 2379 (1989), to provide that section 104(a\2) “shall not apply to any punitive damages in connection with a case not involving physical injury or physical sickness.”’ 14 for personal injuries, including, é.g., amounts re- covered for pain and suffering, are non-taxable. The distinction between damages at law and eq- uitable damages is thus no distinction at all for pur- poses of section 104(a)(2). As this Court noted long ago, in rejecting a taxpayer’s hypertechnical argu- ment based on historic property law, “the legal par- aphernalia which inventive genius may construct as a refuge from surtaxes should not obscure the basic [tax] issue.” Helvering v. Clifford, 309 U.S. 331, 334 (1940). The same observation seems appropriate when courts or administrators seek, by technical niceties or casuistries, simply to increase the federal treasury. IV. GOVERNMENT THEORIZING ABOUT “PERSONAL CAPITAL” OR “HUMAN CAPITAL,” “ECONOMIC BENEFITS,” “ACCESSIONS TO WEALTH” OR “EN- HANCEMENTS OF WEALTH” IS MISDIRECTED AND PROVIDES NO BASIS FOR LIMITING THE EX- CLUSION PROVIDED BY SECTION 104(a)(2) The government seizes upon the phrases ‘‘accession to wealth” and “enhancement of wealth” as they ap- pear in the case of Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955), proposing that these phrases limit the exclusion provided by section 104(a\2). How- ever, the Glenshaw Glass case deals only with the question of what is income under section 22(a) of the Internal Revenue Code of 1939 (section 61 of the present Internal Revenue Code). The issue was whether punitive antitrust damages, i.e., two-thirds of treble antitrust damages, constituted gross income for tax purposes. The Court held Sweepingly that any “accessions to wealth’? may constitute gross income, observing the “all-inclusive nature of Statutory gross income.’’ 348 U.S. at 431, 432 n.11. The Glenshaw 15 Glass case was not a section 104(a)(2) case and did not involve an attempt by this Court to limit the exclusion of that section. To the contrary, since the tax concept of income is generally ‘“‘all-inclusive,’”’ that decision, if anything, emphasized the importance of overriding statutory exclusions. Section 61(a) begins by stating ‘‘Except as otherwise provided in this sub- title, gross income means all income from whatever source derived ... .”” The case now before the Court deals with an exception to income, not the general rule. The exception cannot be limited by references to the broad scope of the general rule, as the Gov- ernment has attempted to argue. In its brief, the Government seeks to develop a concept for tax purposes of ‘personal capital’ or “human capital,” redress for injury to which produces no ‘“‘economic benefit.”” On the other hand, monetary damages for intangible injuries, it is asserted, rep- resent ‘‘economic benefits,’’ and therefore, in some way not readily apparent, economic benefits do not enjoy the protection from tax provided by section 104(a\(2). This theorizing not only has no support in the tax law generally, but is simply an attempt to engraft a limitation—which appears nowhere else—on section 104(a)(2). When taxpayers have attempted to invoke the no- tion of “personal capital” or ‘human capital” for de- preciation or amortization deductions to their tax advantage, the courts have contemptuously dismissed these efforts. As the Court of Appeals for the Seventh Circuit has noted in the case of Coleman v. Com- missioner, 791 F.2d 68, 70 (7th Cir. 1986): The billingsgate in appellants’ briefs is cus- tomary in cases of this nature. Coleman says 16 that wages may not be taxed because they come from his person, a depreciating asset. The personal depreciation offsets the wage, leaving no net income. Coleman thinks that only net income may be taxed under the Six- teenth Amendment—net income as Coleman- defines it, rather than as Congress does. ... These are tired arguments. That Court referred to “hundreds of other cases”’ holding the same, citing as among them, United States v. Thomas, 788 F.2d 1250, 1253 (7th Cir.), cert. de- nied, 479 U.S. 853 (1986), appeal of remand, 934 F.2d 840 (7th Cir. 1991); Lovell v. United States, 755 F.2d 017 (7th Cir. 1984); Granzow v. Commissioner, 739 F.2d 265, 267 (7th Cir. 1984); United States v. Ko- libski, 732 F.2d 1328, 1829 & n.1 (7th Cir. 1984). See also Lonsdale v. Commissioner, 661 F.2d 71, 72 (5th Cir. 1981). The Government suggests that damages on account of injuries to human capital would be nontaxable with- out regard to section 104(a)(2), while damages for other, intangible injuries result in “economic bene- fits,” which are income taxable despite section 104(a)(2). However, in all monetary recovery cases for personal injuries there is in economic terms an acces- sion to wealth, an enhancement of wealth, and an economic benefit. Were the notions proposed by the Government valid, section 104(aX2) would serve no purpose whatever. Recoveries for bodily injury would, without regard to that section, be nontaxable; other recoveries would be taxable. The attempt to distinguish “economic” recoveries from human capital’ recoveries is also inherently illogical. All dollar recoveries have an economic effect 17 and enhance economic wealth, unless property with an equal or greater tax basis is exchanged for the money. A recovery for bodily injury, which tempo- rarily prevents working for wages, results in an ‘‘eco- nomic benefit’’ where the award is measured by a loss of wages. In other cases, e.g., libel to professional reputation, damages may well be measured by an es- timated loss of income, which, had it been received, would be fully taxable. These damages also produce an economic benefit; nevertheless the damages are excludable from income under section 104(a)(2). The Government also asserts that Title VII is sim- ply a “‘back pay” statute as if it were no more than a minimum wage statute. Pursuant to this charac- terization of Title VII, the Government contends that ‘‘back pay,” if it had been received as wages in past periods, would have been fully taxable. Therefore, the argument runs, the back pay allegedly received by respondents under this back pay statute simply re- dresses a shortage of compensation income and should also be taxable. This is a circular argument: compen- sation for services is taxable; because the damages are allegedly equal to compensation income, the sec- tion 104(a)(2) exclusion should not apply; therefore the damages are taxable as compensation income. The Government has of course omitted to mention this doctrine in the Treasury regulations drafted by the Government. There is a ruling, Revenue Ruling 72-341, 1972-2 C.B. 32, which reaches the Govern- ment’s conclusion on an admitted back pay award, but the ruling interprets only section 61 of the In- ternal Revenue Code. It contains no reference to sec- tion 104(a\X2) or a limitation thereon. Moreover, contrary to the Government’s assumption (Govern- 18 ment Br. 19), rulings are not the equivalents of Treas- ury regulations and have no authoritative standing. See Dixon v. United States, 381 U.S. 68, 73 (1965) (Congress has not given rulings the force of law); Stubbs, Overbeck & Associates, Inc. v. United States. 445 F.2d 1142, 1146-47 (Sth Cir. 1971) (a “ruling is merely the opinion of a lawyer in the agency’’). Finally, the Government's argument that the set- tlement amounts in this case are simply back pay, and taxpayers will be taxed as they should be if the Government prevails, is factually incorrect. The set- tlement awards were not measured arithmetically as the equivalents of inadequate compensation. The awards, compared to annually received wages, are lump sum, thereby if taxable possibly throwing tax- payers into a higher bracket under section 1 of the Internal Revenue Code. The awards, compared to ad- ditional compensation which might have been paid in prior years, are deferred without interest; they do not take into account time values. The victims of Title VII discrimination in this case also for years sustained a lower standard of living, lower prospects of pro- motion, a loss of self-esteem, stigmatization in effect as “‘mere female” employees, and other intangible injuries resulting from the discrimination. The settle- ment awards certainly provide redress for these in- tangibles as well as past discriminatory lower wages. In dealing with the argument that the taxpayers in this case should be taxed because additional compen- sation for past years would have been taxable, the Tax Court has concluded, “Whether the damages paid to the tort victim reflect a substitute for amounts or items otherwise taxable or a substitute for amounts or items to be enjoyed without a tax consequence is 19 irrelevant.”” Downey v. Commissioner, 97 T.C. at 163- 64. If any party is to limit a Congressional provision for exclusion, it should not be the tax collecting administration. Nor do courts have the power to re- write statutes according simply to their views of sound policy. The prerogative of revising the substance of a Congressional Act belongs to the Congress. Section 104(a)(2) reflects a policy that the Federal Government ought not take its usual tax percentage cut out of situations of misfortune, misery, unfairness and justified unhappiness. The Internal Revenue Ser- vice is not entitled to change this statutory policy. 20 CONCLUSION For the reasons set forth here, we respectfully re- quest that the opinion and decision of the Court below be affirmed. Respectfully submitted, WALTER J. ROCKLER Counsel of Record ARNOLD & PORTER 1200 New Hampshire Ave., N.W. Washington, D.C. 20036 (202) 872-6789 Attorney for Amicus Curiae Of Counsel: JONATHAN B. BurRNs ARNOLD & PORTER 1200 New Hampshire Ave., N.W. Washington, D.C. 20036 December 23, 199] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385013_0167%3A10. Public record. Not legal advice.