Magazine article The CPA Journal

Back Pay Awards Ruled Includible in Income

Magazine article The CPA Journal

Back Pay Awards Ruled Includible in Income

Article excerpt

On May 26, 1992, the Supreme Court ruled that amounts received in settlement of sex discrimination claims under Title VII of the Civil Rights Act of 1964 are taxable to the recipients (U.S. v. Burke, US Sup Ct, No. 91-42). In this case, the taxpayers were female employees of the Tennessee Valley Authority (TVA) who brought suit against TVA alleging discrimination in pay based on gender. The parties settled the case, agreeing that a sum of $5 million would be distributed to the affected employees based on length of service and rates of pay. TVA withheld federal income tax and social security from the payments, and the plaintiffs sued to recover the withheld amounts.

The district court ruled for the government on the basis that the case was one for the recovery of wage deficiencies. The Sixth Circuit reversed, stating that it is the "origin and character" of the claim and not the "consequences that result from the injury" that determine whether the injury is "personal." It noted that it has long been held that injuries resulting from invidious discrimination on the basis of race, sex, national origin, or some other unlawful category are injuries to the individual rights and dignity of the person. …

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