Tax Accounting Research Paper

810 Words Jul 18th, 2013 4 Pages
February 7, 2012
TAX FILE MEMORANDUM
TO: Professor
FROM: Student
SUBJECT: Murray Taxpayer Issues Regarding Damage Award
Facts: Murray Taxpayer was previously employed by a company who was illegally dumping chemicals into a river. Murray had knowledge concerning these illegal activities of his employer and made an ethical decision to report this to the Environmental Protection Agency. Upon inspection, the Environmental Protection Agency determined that Murrays employer was in fact illegally dumping and was appropriately fined for the charges. Murray’s employer reacted to his whistleblowing by firing him and making deliberate efforts to prevent Murray from gaining employment elsewhere. Murray then sued his former employer for damaging
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Unfortunately this decision was overturned on July 3, 2007 [2007-2 U.S.T.C. ¶50,531, (Jul. 3, 2007)].
Conclusion: Thanks to the landmark case, Marrita Murphy and Daniel J. Leveille, Appellants v. Internal Revenue Service and United States of America, Appellees, there is now no misunderstanding that awards received for damages to personal and professional reputation and mental suffering are included in gross income and are therefore taxable under 26 U.S.C. § 104(a)(2). This determines that because Murray did not suffer personal physical injuries and since gross income as defined by Code Sec. 61 includes compensatory damages for nonphysical injuries, such as those awarded to Murray, his award is in fact taxable [2007-2 U.S.T.C. ¶50,531, (Jul. 3, 2007)].
Issue 2: Are damages for personal injury considered restoration of human capital? And if so, is it excluded from gross income for tax purposes?
Analysis: Also referring to the case, Marrita Murphy and Daniel J. Leveille, Appellants v. Internal Revenue Service and United States of America, Appellees, Murphy continues her attempt to recover the taxes she paid on her compensatory damage award by arguing, like Murray, that her award was in fact a recovery of human…

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