Academic journal article Journal of Accountancy

Are Age Discrimination Awards Excludable? Two Opinions

Academic journal article Journal of Accountancy

Are Age Discrimination Awards Excludable? Two Opinions

Article excerpt

Under Internal Revenue Code section 104(a)(2), damages received for personal injuries are excludable from gross income.

The U.S. Supreme Court decided in Burke (S. Ct., 1992) that back pay awards to settle employment discrimination claims under title VII of the federal Civil Rights Act (before its amendment by Congress in 1991) are not excludable under section 104(a)(2).

The Supreme Court decision hinged on the definition of personal injuries. Although the term is not explained in the code or in the legislation history, the regulations say damages must be received because of prosecution of some "tort or tort-type rights" to be excludable. Based on this analysis, the Court said title VII had to redress a tort-like personal injury for the damages to be excludable.

The Court found title VII, before its 1991 amendment, did not redress a traditional tort-like injury. Its decision was based on the lack of variety of remedies available to employees before November 21, 1991, the effective date of the 1991 amendment to title VII. Only two basic remedies were available: (1) back pay and (2) court orders forcing an employer to hire, promote or rehire someone. The Court contrasted these limited remedies to those usually available to plaintiffs suing because of other physical or nonphysical personal injuries: medical expense reimbursements and damages for pain and suffering, emotional distress, harm to reputation or other injuries. Thus, the Court held the damages were not excludable under section 104(a)(2). …

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