Murray reported to the Environmental Protection Agency that his employer was illegally dumping chemicals into a river. His charges were true, and Murray's employer was fined. In retaliation, Murray's employer fired him and made deliberate efforts to prevent Murray from obtaining other employment. Murray sued the employer, claiming that his reputation had been damaged. Murray won his lawsuit and received an award for "damages to his personal and professional reputation and for his mental suffering." Now he would like to know whether the award is taxable. He argues that he was awarded damages as a recovery of his human capital and that recovery of capital is not income. Therefore, the Federal government does not have the power to tax the award.
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The argument that is being made by Murray in this case is actually based upon a real case involving a citizen with the last name Murphy. In this case, the United States Court of Appeals for ...
Murphy vs IRS is examined. The capital income recovered by the Federal government is examined.