IRS May Tax Emotional Distress Damages

Last year, the D.C. Circuit held that emotional distress damages were not taxable and that to do so was unconstitutional. The case, Murphy v. IRS, arose in the context of an employment law matter. Well, the same panel just reversed itself. The court held that emotional distress damages not arising from physical injury were properly taxed under the Internal Revenue Code. Here is the opinion. Don't read it unless you enjoy the tax code, constitutional law, or want to turn to stone. Just saying.