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September 5, 2006
Murphy v. IRS Leaves Tax Community Reeling

Full Text Published by Tax Analysts®

Article originally published in
Tax Notes on September 4, 2006.


Tax Analysts is dedicated to reporting and analyzing federal, state, and international tax issues of all kinds. But we rarely make a statement like this: A recent decision out of the Court of Appeals for the District of Columbia is not only one of the most significant tax decisions in decades, it is one of the most important constitutional cases in decades as well.

The court ruled that a federal income tax statute is unconstitutional because it taxes the awards for emotional injuries suffered and for damages to one's professional reputation. Finding a federal tax statute's definition of income unconstitutional is mostly unheard of. Colloquially stated, the decision creates a potential loophole that you could drive a truck through.

Initially, it seems easy for tax lawyers to dismiss the case as, well, screwy. Or for tax professors to quip that if judges can make decisions like this, their tax professors failed them in law school. Several in the tax community have already concluded that the Supreme Court will get this decision on appeal and rip it to pieces.

But there are many others who don't read it that way, including lawyers who are not tax lawyers.

The name of the case is Murphy v. IRS, and the obvious jokes about Murphy's law are plentiful indeed. So, here's another one: There is a somewhat lesser-known corollary to Murphy's famous law. It goes like this: Murphy was an optimist.

This is a significant case, and to think of it as an anomaly that will quickly go away may be too optimistic.

Following is a collection of five articles from Tax Analysts publication *Tax Notes on the District of Columbia Circuit Court of Appeals decision in Marrita Murphy v. IRS. Through them you will see why this is not just an important tax case, but an important case, period.

— Christopher Bergin
Tax Analysts President and Publisher

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