Downey v. Comm'r

100 T.C. No. 40, 100 T.C. 634, 1993 U.S. Tax Ct. LEXIS 40, 62 Fair Empl. Prac. Cas. (BNA) 361

• Court: United States Tax Court
• Decided: June 29, 1993
• Docket: Docket No. 11120-89
• Status: Published

Opinions

SUPPLEMENTAL OPINION

Ruwe, Judge:

This case is before the Court on respondent’s motion to reconsider our opinion in Downey v. Commissioner, 97 T.C. 150 (1991), in light of the Supreme Court’s decision in United States v. Burke, 504 U.S. _, 112 S. Ct. 1867 (1992). In our previous opinion, we held that the entire amount received by petitioner Burns P. Downey in settlement of a suit brought under the Age Discrimination in Employment Act of 1967 (ADEA), Pub. L. 90-202, 81 Stat. 602 (current version at 29 U.S.C. secs. 621-634 (1988)), was excludable under section 104(a)(2).¹

The issue in United States v. Burke, supra, was whether an award of backpay based on a sex discrimination claim under title VII was excludable under section 104(a)(2). The Supreme Court held that only damages received on account of a claim that redresses a tortlike personal injury are excludable under section 104(a)(2). Id. at _, 112 S. Ct. at 1872. The mere fact that discrimination caused harm to its victim does not mean that it was a tortlike personal injury for purposes of section 104(a)(2).

It is beyond question that discrimination in employment on the basis of sex, race, or any of the other classifications protected by Title VII is, as respondents argue and this Court consistently has held, an invidious practice that causes grave harm to its victims. The fact that employment discrimination causes harm to individuals does not automatically imply, however, that there exists a tort-like “personal injury” for purposes of federal income tax law. [Id. at_, 112 S. Ct. at 1872-1873; citations omitted.]

With respect to whether a sex discrimination claim under title VII was a tortlike personal injury claim, the Supreme Court stated:

No doubt discrimination could constitute a “personal injury” for purposes of § 104(a)(2) if the relevant cause of action evidenced a tort-like conception of injury and remedy. * * * [Id. at _, 112 S. Ct. at 1873; emphasis added.]

The Supreme Court found that one of the hallmarks of traditional tort liability was the availability of a broad range of damages to compensate the victim. These included damages for intangible elements of injury that were not pecuniary in their immediate consequences. The Court also found that punitive or exemplary damages are generally available in tort actions where the defendant’s conduct was intentional or reckless. Id. at _, 112 S. Ct. at 1871, 1872. In deciding whether a title VII claim evidenced a tortlike conception of injury and remedy, the Supreme Court focused on the remedies “available” under the statutory provisions of title VII. Id. at _, 112 S. Ct. at 1871-1874.² The Supreme Court found that

in contrast to the tort remedies for physical and nonphysical injuries discussed above, Title VII does not allow awards for compensatory or punitive damages; instead, it limits available remedies to backpay, injunctions, and other equitable relief. * * * [Id. at _, 112 S. Ct. at 1873.³]

Because of the limited remedy provided by title VII, the Supreme Court concluded:

Thus, we cannot say that a statute such as Title VII, whose sole remedial focus is the award of backwages, redresses a tort-like personal injury within the meaning of sec. 104(a)(2) and the applicable regulations. [Id. at _, 112 S. Ct. at 1874; fn. refs, omitted.⁴]

The issue we must decide is whether Mr. Downey’s discrimination claim under the ADEA constitutes a tortlike personal injury claim for purposes of section 104(a)(2). If the answer is yes, any damages received on account of that claim are excludable. Horton v. Commissioner, 100 T.C. 93, 97 (1993).

In contrast to title VII, the adea offers a range of remedies, including both unpaid wages and “liquidated damages”. Liquidated damages under the ADEA have been held to “serve both a compensatory and a deterrent or punitive function.” Downey v. Commissioner, supra at 172; Rickel v. Commissioner, 92 T.C. 510, 521 (1989), revd. on other grounds 900 F.2d 655 (3d Cir. 1990). “Liquidated damages” under the adea serve to compensate the victim of age discrimination for certain nonpecuniary losses. Downey v. Commissioner, supra at 170. This is a remedy traditionally associated with tort claims. United States v. Burke, 504 U.S. at _, 112 S. Ct. at 1873. The fact that “liquidated damages” also serve a deterrent or punitive purpose further supports the conclusion that a claim under the ADEA is tortlike. Indeed, the Supreme Court in Burke noted that punitive or exemplary damages are generally available in tort actions where the defendant’s misconduct was intentional or reckless. Id. at _, 112 S. Ct. at 1871, 1872;⁵ see Horton v. Commissioner, supra (holding punitive damages received on account of personal injury excludable under section 104(a)(2)).

We hold that the ADEA compensation scheme evidences a tortlike conception of injury and remedy. It follows that discrimination under the ADEA constitutes a tortlike personal injury for purposes of section 104(a)(2), and all damages received by Mr. Downey on account of his ADEA claim are excludable from income. See Horton v. Commissioner, supra. We therefore reaffirm our original holding in this case.

Decision will be entered under Rule 155.

Reviewed by the Court.

Hamblen, Parker, Shields, Clapp, Swift, Gerber, Parr, WELLS, Colvin, and Chiechi, JJ., agree with the majority.

1 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

2 Justice O’Connor’s dissent criticized the majority for focusing on the available statutory remedies. The majority provided the following response:

The dissent nonetheless contends that we “misapprehen[d] the nature of the inquiry required by sec. 104(a)(2) and the IRS regulation” by “[flocusing on [the] remedies” available under Title VII. * * As discussed above, however, the concept of a “tort” is inextricably bound up with remedies — specifically damages actions. Thus, we believe that consideration of the remedies available under Title VII is critical in determining the “nature of the statute” and the “type of claim” brought by respondents for purposes of sec. 104(a)(2). *** [United States v. Burke, 504 U.S. _, _, 112 S. Ct. 1867, 1872 n.7 (1992); citations omitted.]

3 The Supreme Court made the following comparisons:

Indeed, the circumscribed remedies available under Title VII stand in marked contrast not only to those available under traditional tort law, but under other federal antidiscrimination statutes, as well. For example, 42 U.S.C. sec. 1981 permits victims of race-based employment discrimination to obtain a jury trial at which “both equitable and legal relief, including compensatory and, under certain circumstances, punitive damages may be awarded.” The Court similarly has observed that Title VIII of the Civil Rights Act of 1968, whose fair housing provisions allow for jury trials and for awards of compensatory and punitive damages, “sounds basically in tort” and “contrasts sharply” with the relief available under Title VII. [Id. at_, 112 S. Ct. at 1873-1874; citations and fn. ref. omitted.]

4 Subsequent to the title VII claim at issue in United States v. Burke, supra, title VII was amended to allow recovery of future pecuniary losses, emotional pain, suffering, inconvenience, mental anguish, loss of enjoyment of life, and other nonpecuniary losses, as well as punitive damages. See Civil Rights Act of 1991, Pub. L. 102-166, 105 Stat. 1073. With respect to this amendment, the Supreme Court stated:

we believe that Congress’ decision to permit jury trials and compensatory and punitive damages under the amended act signals a marked change in its conception of the injury redressable by Title VII ***[United States v. Burke, 504 U.S. at _, 112 S. Ct. at 1874 n.12.

5 A claimant under the Age Discrimination in Employment Act of 1967 (ADEA), Pub. L. 90-202, 81 Stat. 602 (current version at 29 U.S.C. secs. 621-634 (1988)), also has the right, like ordinary tort plaintiffs, to a jury trial “of any issue of fact.” 29 U.S.C. sec. 626(c)(2). By contrast, the Supreme Court noted in Burke that

the Courts of Appeals have held that Title VII plaintiffs, unlike ordinary tort plaintiffs, are not entitled to a jury trial. '■ * * [United States v. Burke, 504 U.S. at _, 112 S. Ct. at 1872; emphasis added.]