Sex, Race, and Age: Double Discrimination in Torts and Taxes

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Washington University Law Quarterly


It is truly uncommon when a tax statute casts off from its financial, economic, and accounting moorings in the Internal Revenue Code and sets sail in the murky waters and confusing undercurrents of American society's shifting social attitudes.' Section 104(a)(2), an octogenarian veteran of the Internal Revenue Code (Code), is like such a seafaring vessel-heading upwind toward an emerging public policy that seeks to regulate private and public behavior in interpersonal relationships. In its original form, this statutory provision excluded from income taxation all monetary damage awards for certain "personal injuries. For approximately eighty years, the tax code afforded damages awarded on account of nonphysical personal injuries the same tax treatment as awards on account of personal physical injury. A brief hiatus between the enactment of § 213(b)(6), the precursor of § 104(a)(2), in the Revenue Act of 1918 and the Solicitor's Opinion 132 in 1922 serves as the one exception. Only with the adoption of the Small Business Job Protection Act of 1996, did Congress limit the income tax exclusion to damages received from personal "physical" injuries or "physical" sickness. Nevertheless, today physicians, lawyers, and social scientists acknowledge that nonphysical injuries resulting from racial discrimination cause enduring intergenerational scars and may be more enduring and more severe than physical injuries caused by the loss of an arm or leg in a traffic accident. Additionally, both empirical studies and congressional policies now recognize the insidiousness of sexual harassment, age, and disability discrimination, as well as the long-term and sometimes permanently debilitating effects inflicted upon their victims. As the statute continues its rough passage through the rising swells of statutory, regulatory, and judicial interpretation, § 104(a)(2) could lose its bearings and wander off of its intended nondiscriminatory course. Society's weakest groups are frequently the victims of nonphysical personal injuries and should possess the same inalienable rights to redress personal injury as historically enjoyed by dominant white males. Inequitable tax treatment based on the nonphysical nature of a victim's injuries is irrational, arbitrary, and without constitutional justification. While the '50s provided a calm before the storm, the '60s cast our society into the turbulent seas of social and economic revolution, embracing both race and gender." Spearheaded by the Warren Court and the Civil Rights Act of 1964, the tempest of the sixties cleared the air and set the scene for major changes in the law. In the '70s American social consciousness became increasingly sensitive to economic disparity between races and genders, propelling these issues to the forefront of congressional policy and judicial action. Next, the self-interested '80s, known as the Decade of Greed, revealed the stress fractures caused by the social revolution of the '60s and by the progressiveness of the '70s. Indeed, the call for tort reform first emerged in the '80s, and it continues today to be an issue high on the agenda of many political groups. Against the background of the civil fights struggle, this Article examines the eighty-year history of § 104(a)(2). The congressional purpose for the changes to § 104(a)(2) was to raise revenues needed to fund tax incentives created by the Small Business Job Protection Act of 1996. This Article attempts to uncover and elucidate the underlying reasons for the judicial interpretations and subsequent discriminatory amendments. These conflicting claims set the debate over § 104(a)(2) against the background of society's emerging respect for the value and dignity of the person. Furthermore, it underscores the lack of legislative and judicial regard for the rights of the groups historically treated as barnacles on the hull of society: minorities, women, the elderly, and the disabled. More importantly, it uncovers preconceived false notions of nonphysical injuries-notions firmly attached to the seabed of a largely male, Caucasian, masculine dominated judiciary and legislature. It dredges up the potent yet frequently unconscious prejudices that have conditioned the incongruous treatment of victims of personal injuries. Overall, this Article supports deliberate congressional action to ameliorate this discordant state of affairs. This Article first provides the traditional scholarly survey of legislative history, statutory analysis, and governmental and judicial interpretations. Part II reviews the history of § 104(a)(2) and offers a substantive inquiry into the Supreme Court opinions in United States v. Burke, Commissioner v. Schleier, and in the major cases leading up to these decisions. Part III then reviews the tax policy assumptions supporting § 104(a)(2) from a perspective of both before and after the 1996 amendments. Part IV chronicles the history and current status of various federally enacted civil rights statutes. This part then presents a historical overview of the emergence of tort reform at the federal and state levels-a reform in many ways diametrically opposed to that of civil rights legislation evolving and expanding the scope of protections and remedies. These two movements-civil rights and tort reform-elucidate the current status of § 104(a)(2). With respect to § 104(a)(2), tort reform takes place not in the traditional sense, Congress passing federal tort reform, but rather through the "back door"--tort reform in a taxing statute. Part V criticizes the judicial craftsmanship used in United States v. Burke and Commissioner v. Schleier. Next, this Article departs from traditional legal analysis by examining the psychological, sociological, and economical consequences of the discrimination and arbitrary double standard that § 104(a)(2) imposes on the victims of nonphysical harm. In doing so, this Article studies socio-economic factors causing the evolution of § 104(a)(2) and employs relevant psychoanalytic and cognitive psychological theories. Part VI archives the well-documented negative psychological, physical, social, economical, and societal consequences that result from various forms of discrimination. Part VII applies psychoanalytic and cognitive theories of psychology to support the thesis that the 1996 amendment to § 104(a)(2) is a product of unconscious judicial and legislative discrimination. This Part also contains a historic overview of the law of emotional distress that pertains to the current status of § 104(a)(2), especially when viewed under the psychoanalytic and cognitive theories of unconscious discrimination. Finally, Part VIII concludes the Article, recommending that Congress take immediate action to remedy the tax discrimination leveled against victims of dignitary torts and raise revenues to support the exclusion by disallowing deductions for amounts paid to victims of discrimination by the tortfeasors. In an effort to effectively influence the drafting of appropriate legislation, this Article will conclusively demonstrate that in the context of § 104(a)(2) there are no sustainable or well-founded tax or social policy justifications for treating victims of nonphysical injuries differently from those of physical injuries. Rather, broad social and congressional policy requires that victims of discrimination, in all its forms, be treated equally for tax purposes.

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Winter 2000