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7 S. Cal. Rev. L. & Women's Stud. 223 (1997-1998)
Not Color- or Gender-Neutral: New Tax Treatment of Employment Discrimination Damages

handle is hein.journals/scws7 and id is 235 raw text is: NOT COLOR- OR GENDER-NEUTRAL: NEW TAX TREATMENT OF EMPLOYMENT DISCRIMINATION DAMAGESt KAREN B. BROWN* I. INTRODUCTION To support a host of tax give aways offered as a palliative to small businesses required to pay a higher minimum wage, Congress elimi- nated a venerated Internal Revenue Code (IRC) provision that sup- ported exclusion from gross income of damages received on account of race- and gender-based employment discrimination.1 Congress' 1996 amendment of IRC section 104(a) erased seventy years of tax history by limiting tax-free damages awards to only those arising from a physical injury.' Prior law consistently read the old language of the section 104(a)(2) gross income exclusion for damages received... on account of personal injuries to include recoveries for nonphysical as t © 1998, Karen B. Brown. * Donald Phillip Rothschild Research Professor of Law, George Washington University Law School. I would like to thank the following for their thoughtful and helpful comments on earlier drafts of this article: Professors Jennifer Brooks, Dorothy A. Brown, Karen B. Burke, Gwen Thayer Handelman, Grayson M.P. McCouch, Robert Peroni, and Michael L. Selmi. Spe- cial thanks to Professor Mary Louise Fellows who provided invaluable comments, feedback, and support and helped me make several analytical breakthroughs. Finally, I would like to acknowl- edge the support of the University of Minnesota Law School's Summer Research Fund and the research assistance of Yvonne McQueen, a law student at the University of Minnesota, Renae Welder and Christine Martin, graduates of the University of Minnesota Law School, and Jean Watts and Aruna Subramaniam, graduates of George Washington University Law School. I dedicate this article to my talented niece, Destiny B. Brown. 1. Small Business Job Protection Act of 1996, Pub.L. No. 104-188, § 1605(a),(b), 110 Stat. 1755, 1838-39 (codified as amended at I.R.C. § 104(a) (West Supp. 1997)). 2. Although the Internal Revenue Service initially ruled that damages for alienation of affection and defamation were taxable, two years later in 1922 (regarding alienation of affection) and five years later in 1927 (regarding defamation) it reversed its position. See Sol. Op. 132, I-1 C.B. 92, superseded by Rev. Rul. 74-77, 1974-1 C.B. 33 (damages for alienation of affection are not taxable); Hawkins v. Commissioner, 6 B.T.A. 1023 (1927), acq. VII-1 C.B. 14 (1928); Doug- las A. Kahn, Compensatory and Punitive Damages for a Personal Injury: To Tax or Not to Tax?, 2 FLA. TAX REv. 327, 330-35 (1995).

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