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Tax Research Essay

924 words - 4 pages

SUBJECT: Taxation of Award

FACTS:

Murray, a working U.S. citizen reported to the Environmental Protection Agency that his employer was illegally dumping chemicals into a river. Upon further review of the matter, Murray’s statements were conducted to be true and a penalty was given to his employer. After getting news about the penalty, Murray’s employer dismissed him from the organization and made an effort to prevent Murray from being able to work for any other employer. He later sued the company, and was compensated an award for “damages to his personal and professional reputation and for his mental suffering.” Murray defines his awarded damages as a recovery of his human capital ...view middle of the document...

” Commissioner v. Schleier, 515 U.S. 323, 328 (1995), exclusions from gross income in Section 104(a)(2) provides that gross income does not include:
“The amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness”
The regulations under section 104(a)(2) provide in pertinent part: “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.” Furthermore, since 1996 it has further provided that, “purposes of this exclusion emotional distress shall not be treated as a physical injury or physical sickness.” Murphy vs. IRS and United States U.S.T.C 50, 531 (3 Jul, 2007).
Next, the courts have established which acts constitute the practice of compensation as a whistleblower award. Accordingly IRS: 63,060.10 state that, “Informants provide leads upon which the Criminal Investigation Division (CID) may base a criminal investigation. The most common informants are former spouses and fired employees.” This would allow Murray’s award from his former employer as a whistleblower.
In the present case of Murray’s award being excluded from gross income, the establishment of the law was justified in Justin W. Hansen, Petitioner vs. Commissioner 97 T.C.M 1447, (USTC 2009), “an individual could not exclude from income any portion of the proceeds received in settlement of several claims against his former employer. The agreements expressly provided that the taxpayer and his former employer entered into the agreement in order to resolve discrimination complaints.” However, if Murray’s award is determined by the judicial decision to be accepted as a...

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