Stadnyk v. Commissioner , 367 F. App'x 586 ( 2010 )

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 10a0128n.06
No. 09-1485 FILED
Feb 26, 2010
UNITED STATES COURT OF APPEALS LEONARD GREEN, Clerk
FOR THE SIXTH CIRCUIT
DANIEL J. STADNYK and BRENDA J.
STADNYK,
Petitioners-Appellants,
ON APPEAL FROM THE UNITED
v. STATES TAX COURT
COMMISSIONER OF INTERNAL
REVENUE,
Respondent-Appellee.
/
BEFORE: GUY, CLAY, and KETHLEDGE, Circuit Judges.
CLAY, Circuit Judge. Petitioners Daniel and Brenda Stadnyk appeal from the order entered
by the United States Tax Court denying their petition for redetermination of a deficiency. For the
reasons set forth below, we AFFIRM the Tax Court’s order.
BACKGROUND
On December 11, 1996, Petitioners purchased a used 1990 Geo Storm from Nicholasville
Road Auto Sales, Inc. (“Nicholasville Auto”) for $3,430.00. Brenda Stadnyk tendered two checks
to Nicholasville Auto as partial payment, check number 1080 for $100 and check number 1087 for
$1,100, from a checking account with Bank One, Kentucky, N.A. (“Bank One”). After Petitioners
drove approximately seven miles from the dealership, the car broke down. Petitioners spent $479.78
to repair the car. They attempted to call Nicholasville Auto about the Geo Storm, but their calls were
ignored, placed on hold for long periods of time, and not returned.
No. 09-1485
Because of their dissatisfaction with the car, Mrs. Stadnyk contacted Bank One to place a
stop payment order on check number 1087 for $1,100. Bank One’s record of the stop payment order
indicates “dissatisfied purchase” as the reason for the stop payment. However, Bank One incorrectly
stamped the check “NSF” for insufficient funds and returned it to Nicholasville Auto. On February
4, 1997, Nicholasville Auto filed a criminal complaint against Mrs. Stadnyk for issuing and passing
a worthless check in the amount of $1,100.
At approximately 6:00 p.m. on February 23, 1997, officers of the Fayette County Sheriff’s
Department arrested Mrs. Stadnyk at her home in the presence of her husband, her daughter, and a
family friend, and transported her to the Fayette County Detention Center. She arrived at the
detention center at approximately 6:30 p.m., and she was handcuffed, photographed, and confined
to a holding area. At approximately 11:00 p.m., Mrs. Stadnyk was transferred to Jessamine County
Jail, where she was searched via pat-down and use of an electric wand. Mrs. Stadnyk was required
to undress to her undergarments, remove her brassiere in the presence of officers, and put on an
orange jumpsuit. She was released on bail at approximately 2:00 a.m. on February 24, 1997. On
April 23, 1997, Mrs. Stadnyk was indicted for “theft by deception over $300.00” based on the
returned check marked for insufficient funds. These charges were later dropped.
Mrs. Stadnyk testified that she did not suffer any physical injury as a result of her arrest and
detention. According to Mrs. Stadnyk, nobody put their hands on her, grabbed her, jerked her
around, bruised her, or hurt her. As a result of the incident, Mrs. Stadnyk visited a psychologist
every 1.5 to two weeks for approximately eight sessions. The cost of these sessions was covered by
2
No. 09-1485
Mrs. Stadnyk’s insurance and employer. Mrs. Stadnyk did not pay any out-of-pocket medical
expenses for physical injury or mental distress as a result of the arrest and detention.
On August 25, 1999, Mrs. Stadnyk filed a Complaint against J.R. Maze, the owner of
Nicholasville Auto, Nicholasville Auto, and Bank One. On July 5, 2000, she filed a First Amended
Complaint, alleging that Bank One breached its fiduciary duty of care by improperly and negligently
marking her check “NSF” for insufficient funds. Mrs. Stadnyk’s First Amended Complaint also
included the following claims against J.R. Maze and Nicholasville Auto: malicious prosecution,
abuse of process, false imprisonment, defamation, and outrageous conduct. The First Amended
Complaint repeated and incorporated by reference these allegations against Bank One.
On March 7, 2002, Mrs. Stadnyk entered into a mediation agreement with Bank One, under
which Bank One agreed to pay Mrs. Stadnyk $49,000 to settle her claims and provide her with a
letter of apology. In return, Mrs. Stadnyk agreed to dismiss her complaint against Bank One. The
mediation agreement form stated that “Bank One shall pay the total sum of $49,000, by 3/15/02, by
official check” and that “[t]he suit shall be dismissed with prejudice with each party to pay their own
costs & fees.” (App. at 206). It contained no language indicating the purpose for which the
settlement was paid. On March 14, 2002, Bank One issued a check to Mrs. Stadnyk for $49,000,
and on May 3, 2002, Mrs. Stadnyk’s complaint against Bank One was dismissed with prejudice.1
During the trial before the Tax Court, Mrs. Stadnyk testified that her attorney, the attorney
for Bank One, and the mediator all advised her that the settlement proceeds would not be subject to
1
Mrs. Stadnyk’s claims against J.R. Maze and Nicholasville Auto had already been dismissed
with prejudice pursuant to an order entered on June 8, 2001. The record contains no information as
to the terms of the dismissal.
3
No. 09-1485
income tax. Based on this advice, the Stadnyks did not report the $49,000 settlement on their 2002
Form 1040 income tax return, although Bank One issued Mrs. Stadnyk a Form 1099-MISC reporting
the payment of the $49,000 settlement. On March 14, 2005, Respondent issued a notice of
deficiency to Petitioners, after determining that Petitioners were liable for a tax deficiency of
$13,119.00 and an accuracy-related penalty of $2,624.00 under Internal Revenue Code (“I.R.C.”)
§ 6662(a). Petitioners timely appealed to the Tax Court. On January 12, 2009, the Tax Court ruled
in favor of Respondent with respect to the deficiency and in favor of Petitioners with respect to the
penalty. On April 15, 2009, Petitioners filed a timely notice of appeal.
DISCUSSION
I. Standard of Review
We review the Tax Court’s conclusions of law de novo and its findings of facts for clear
error. Limited, Inc. v. Comm’r, 286 F.3d 324, 331 (6th Cir. 2002). We will conclude that a factual
finding is clearly erroneous only if, upon review of the entire record, we are “‘left with the definite
and firm conviction that a mistake has been committed.’” Zack v. Comm’r, 291 F.3d 407, 412 (6th
Cir. 2002) (quoting Sanford v. Harvard Indus., Inc., 262 F.3d 590, 595 (6th Cir. 2001)).
II. The Definition of Income Under I.R.C. § 61(a)
Under I.R.C. § 61(a), taxpayers are liable for all gross income, which is defined as “all
income from whatever source derived.” 26 U.S.C. § 61(a). The Supreme Court has instructed that
§ 61 “be construed liberally ‘in recognition of the intention of Congress to tax all gains except those
specifically exempted.’” Greer v. United States, 207 F.3d 322, 326 (6th Cir. 2000) (quoting Comm’r
4
No. 09-1485
v. Glenshaw Glass Co., 348 U.S. 426, 430, 75 S. Ct. 473, 99 L. Ed. 483 (1955)). Nevertheless, the
I.R.C. provides for a number of exclusions from income.
Petitioners argue that the $49,000 settlement award Mrs. Stadnyk received from Bank One
does not classify as income under I.R.C. § 61(a) because Mrs. Stadnyk was made whole–not
enriched–by the compensatory damages. Petitioners cite to Glenshaw for the proposition that the
term “income” for tax purposes is commonly defined as all “accessions to wealth, clearly realized,
and over which the taxpayers have complete dominion.” 348 U.S. at 431. According to Petitioners,
because Mrs. Stadnyk’s award was compensation for something she had lost, not an “accession to
wealth,” her settlement award does not classify as income under § 61(a).
However, Petitioners’ reliance on Glenshaw for the proposition that income does not include
compensatory damages awards is misplaced. In Glenshaw, the Supreme Court observed that it “has
given a liberal construction to this broad phraseology [of income] in recognition of the intention of
Congress to tax all gains except those specifically exempted.” Id. at 430 (internal citations omitted).
On multiple subsequent occasions, the Supreme Court has reaffirmed the “sweeping scope” of I.R.C.
§ 61(a). See Comm’r v. Schleier, 515 U.S. 323, 327, 115 S. Ct. 2159, 2167, 132 L. Ed. 2d 294
(1995). See also United States v. Burke, 504 U.S. 229, 233, 112 S. Ct. 1867, 119 L. Ed. 2d 34
(1992) (noting that I.R.C. § 61(a) “sweeps broadly” and includes all income “subject only to the
exclusions specifically enumerated elsewhere in the Code”); Comm’r v. Banks, 543 U.S. 426, 433,
125 S. Ct. 826, 160 L. Ed. 2d 859 (2005) (“Banks II”) (noting that the definition of gross income
“extends broadly to all economic gains not otherwise exempted”). Consistent with interpreting the
definition of income broadly, the Supreme Court has “also emphasized the corollary to § 61(a)’s
5
No. 09-1485
broad construction, namely, the ‘default rule of statutory interpretation that exclusions from income
must be narrowly construed.’” Schleier, 515 U.S. at 328 (quoting Burke, 504 U.S. at 248 (Souter,
J. concurring in judgment)). The Supreme Court’s instructions to interpret § 61(a) broadly and
exceptions narrowly have led courts to the conclusion that “subject to certain exemptions, which are
to be construed narrowly, § 61(a) applies to all income, including settlement payments.” Polone v.
Comm’r, 505 F.3d 966, 969 (9th Cir. 2007).
The fact that the damages award is compensatory does not make it nontaxable. The Supreme
Court has found compensatory settlement awards that are not otherwise excluded to be taxable as
gross income under I.R.C. § 61(a). See, e.g., Burke, 504 U.S. at 233 (“[t]here is no dispute that the
settlement awards in this case would constitute gross income within the reach of § 61(a)”); Schleier,
515 U.S. at 328 (“[r]espondent recognizes § 61(a)’s ‘sweeping’ definition and concedes that his
settlement constitutes gross income unless it is expressly excepted by another provision in the Tax
Code”). While the Supreme Court has never explicitly ruled that compensation received for personal
injury is income pursuant to § 61(a), nothing in the Court’s analysis of the scope of § 61(a) supports
Petitioners’ argument that the Court would come to a different conclusion in the context of personal
injury awards than in the context of backpay. Settlement awards for back pay, like settlement awards
for personal injury, are compensatory in nature because they make the recipient whole.
Furthermore, if damages awards received on account of personal injury were not income,
there would be no need for the exclusion laid out in § 104(a)(2), which exempts from income
taxation any damages received on account of personal physical injuries or physical sickness. See
Lukhard v. Reed, 481 U.S. 368, 376 (1987) (rejecting the argument “that personal injury awards are
6
No. 09-1485
[generally] not treated as income under the Internal Revenue Code” and noting that “in each of these
instances [where personal injury awards are excluded from § 61(a)] there is an express provision that
personal injury awards are not to be treated as income–which causes them not only to fail to support
the proposition that the term ‘income’ automatically excludes personal injury awards, but to support
the opposite proposition that absent express exclusion it embraces them”). See also Murphy v. I.R.S.,
493 F.3d 170, 180 (D.C. Cir. 2007) (holding that money received in compensation for emotional
injuries is taxable income pursuant to § 61 (a) because the 1996 amendments to § 104(a)(2) would
make little sense if § 61(a) did not include compensation for personal injuries).
Accordingly, Mrs. Stadnyk’s $49,000 settlement classifies as gross income under § 61(a),
and Petitioners can only avoid paying taxes on the damages award if it falls under an exclusion.
III. The Exclusion in I.R.C. § 104(a)(2)
The exclusion from § 61(a) at issue in the instant case is contained in § 104(a)(2), which
permits taxpayers to exclude from income “the amount of any damages received (whether by suit
or agreement and whether as lump sums or as periodic payments) on account of personal physical
injuries or physical sickness.” 26 U.S.C. § 104(a)(2).
The Supreme Court has held that a taxpayer must meet two independent requirements before
a recovery may be excluded under § 104(a)(2). “First, the taxpayer must demonstrate that the
underlying cause of action giving rise to the recovery is based upon tort or tort type rights; and
second, the taxpayer must show that the damages were received on account of personal injuries or
sickness.” Schleier, 515 U.S. at 337 (internal quotations omitted). To satisfy the second prong, the
taxpayer must present “concrete evidence demonstrating the precise causal connection” between the
7
No. 09-1485
taxpayer’s asserted personal injuries and the settlement she received. Banks v. Comm’r, 345 F.3d
373, 378-79 (6th Cir. 2003) (“Banks I”) (overruled on other grounds by Banks II) (citing Greer, 207
F.3d at 334).
In 1996, I.R.C. § 104(a)(2) was amended to add the word “physical” to the phrase “personal
injuries or sickness.” See Small Business Job Protection Act of 1996, Pub. L. No. 104-188, §
1605(a), 110 Stat. 1755, 1838. Prior to the amendment, I.R.C. § 104(a)(2) encompassed damages
compensating all personal injuries, including non-physical injuries. See Burke, 504 U.S. at 235 n.6.
However, the amendment to I.R.C. § 104(a)(2) expressly limits the type of damages excludable from
income to those received “on account of personal physical injuries or physical sickness,” and
expressly states that emotional distress does not constitute a physical injury or sickness. Pub. L. No.
104-188, § 1605(a), 110 Stat. 1755, 1838.
Petitioners argue that their settlement award satisfies the two-part test laid out in Schleier,
and, thus, may be excluded from taxation under § 104(a)(2).
A. Prong One: Tort or Tort Type Right
Under the first prong, the question is whether Mrs. Stadnyk’s claims against Bank One giving
rise to her recovery are based upon tort or tort type rights. The mediation agreement between Mrs.
Stadnyk and Bank One did not state what claims provided the basis for the settlement award, nor
does the remainder of the record surrounding the settlement provide any insight. Thus, we must look
to the complaint to shed light on what claims gave rise to the award. In Mrs. Stadnyk’s First
Amended Complaint, she alleged a number of tort claims against J.R. Maze and Nicholasville Auto,
8
No. 09-1485
including malicious prosecution, abuse of process, false imprisonment, defamation, and outrageous
conduct, and she repeated, realleged, and incorporated these claims by reference against Bank One.
By incorporating these claims by reference, Mrs. Stadnyk raised these tort claims against Bank One.
In addition, Mrs. Stadnyk alleged in her First Amended Complaint that Bank One breached
its fiduciary duty of care by improperly and negligently marking her check “NSF” for insufficient
funds. Kentucky’s banking statutes recognize elements of both contract and tort law in the bank-
depositor relationship. Under Kentucky law, banks are required to exercise good faith and ordinary
care in the handling of customer accounts, thereby incorporating common law rules of negligence.
See Bullitt County Bank v. Publisher’s Printing Co., 684 S.W.2d 289, 291-92 (Ky. Ct. App. 1984);
Pulliam v. Pulliam, 738 S.W.2d 846, 849 (Ky. Ct. App. 1987); American Nat’l Bank v. Morey, 69
S.W. 759, 760 (Ky. 1902) (recognizing that a bank customer may have a tort claim against a bank
for the wrongful dishonor of a check). Furthermore, under Kentucky law, arrest is a reasonably
foreseeable consequence of a bank’s wrongful dishonor, and a bank customer may sue for damages
resulting from an arrest over such an error. See Ky. Rev. Stat. § 355.4-402 (“A payor bank is liable
to its customers for damages proximately caused by the wrongful dishonor of an item. Liability is
limited to actual damages proved and may include damages for an arrest or prosecution of the
customer or other consequential damages.”).
Based on these Kentucky banking laws and the circumstances of this case, the Tax Court
found that Mrs. Stadnyk’s independent claims against Bank One sounded in tort:
It is incorrect to characterize [Mrs. Stadnyk’s] complaint against Bank One as a
contract claim or merely a dispute over the wrongful dishonor of a check. Rather,
[Mrs. Stadnyk] decided to sue Bank One because of the ordeal she suffered as a result
of her arrest and detention. [Mrs. Stadnyk] did not suffer an economic loss from
9
No. 09-1485
Bank One’s alleged mishandling of her check. She did not sue Bank One to recover
on economic rights arising from a contract with Bank One. [Mrs. Stadnyk] sought
damages against Bank One that resulted from her arrest, detention, and indictment.
(App. at 85-86.) We agree with the Tax Court’s analysis. Based on the finding that Mrs. Stadnyk
alleged tort claims against Bank One in her complaint, we conclude that Mrs. Stadnyk’s settlement
with Bank One was based on tort or tort type rights.
B. Prong Two: “On Account of Personal Physical Injuries”
Having satisfied the first prong, to obtain an exclusion under § 104(a)(2), Mrs. Stadnyk must
show that she sustained the damages on account of personal physical injuries or sickness. Under the
1996 Amendment, I.R.C. § 104(a)(2) expressly limits the type of damages excludable from income
to personal physical injuries or physical sickness and expressly states that emotional distress does
not constitute a physical injury or sickness. Pub. L. No. 104-188, § 1605(a), 110 Stat. 1755, 1838.
Kentucky courts have defined false imprisonment as “any deprivation of the liberty of one person
by another or detention for however short a time without such person’s consent and against his will,
whether done by actual violence, threats or otherwise.” Grayson Variety Store, Inc. v. Shaffer, 402
S.W.2d 424, 425 (Ky. 1966). The tort of false imprisonment protects personal interest in freedom
from physical restraint; the interest is “in a sense a mental one” and the injury is “in large part a
mental one.” Banks v. Fritsch, 39 S.W.3d 474, 479 (Ky. Ct. App. 2001).
During her deposition, Mrs. Stadnyk testified that she did not suffer any physical injury as
a result of her arrest and detention. According to Mrs. Stadnyk, nobody carrying out her arrest or
detention put their hands on her, grabbed her, jerked her around, bruised her, or hurt her. Petitioners’
brief concedes that the actions of the police were proper and that Mrs. Stadnyk presumes that she
10
No. 09-1485
was treated in the same manner as anyone else arrested for passing a bad check. Nothing in the
record suggests that Mrs. Stadnyk suffered physical, as opposed to emotional, injuries as a result of
Bank One’s actions.
The Tax Court correctly noted that “[t]he damages sought by [Mrs. Stadnyk] against Bank
One are stated in terms of recovery for nonphysical personal injuries: [e]motional distress,
mortification, humiliation, mental anguish, and damage to reputation.” (App. at 88). These are all
emotional injuries, and are thus not excludable under § 104(a)(2). See Sanford v. Comm’r, 95
T.C.M. 1618 (2008) (settlement award for emotional distress relating to sexual harassment
and discrimination claims is not excludable); Polone v. Comm’r, 86 T.C.M. 698 (2003)
(settlement award for defamation claim is not excludable), aff’d 505 F.3d 966 (9th Cir. 2007);
Venable v. Comm’r, 86 T.C.M. 254 (2003) (settlement payment for mental anguish and loss
of reputation relating to malicious prosecution claim is not excludable), aff’d 110 Fed. App’x 421
(5th Cir. 2004).
However, despite Mrs. Stadnyk’s testimony, Petitioners argue that Mrs. Stadnyk suffered a
physical injury because “[p]hysical restraint and detention and the resulting deprivation of [Mrs.
Stadnyk’s] personal liberty is [itself] a physical injury . . . that Mrs. Stadnyk endured for an eight
hour period.” (Pets.’ Br. at 15.) Petitioners further argue that Mrs. Stadnyk suffered physical
damages in addition to emotional damages because “to be falsely imprisoned, the person must first
be physically restrained or held against their will” and “[t]hus the damages received from false
imprisonment arise from the person’s physical loss of their freedom and the mental suffering and
humiliation that accompany this deprivation.” (Pets.’ Br. at 15.)
11
No. 09-1485
In other words, Petitioners are asking the Court to create a per se rule that every false
imprisonment claim necessarily involves a physical injury, even though physical injury is not a
required element of false imprisonment under Kentucky law. To be sure, a false imprisonment claim
may cause a physical injury, such as an injured wrist as a result of being handcuffed. But the mere
fact that false imprisonment involves a physical act–restraining the victim’s freedom–does not mean
that the victim is necessarily physically injured as a result of that physical act. In the instant case,
Mrs. Stadnyk unequivocally testified that she suffered no physical injuries as a result of her physical
restraint. Thus, Petitioners have failed to establish that Mrs. Stadnyk suffered from personal physical
injuries or physical sickness.
In addition, the Supreme Court has construed the “on account of” phrase to require a direct
causal link between the physical injury and the damages recovery in order to qualify for the income
exclusion. See Schleier, 515 U.S. at 329-31. This direct causal connection must be more than a “but
for” link, because a “but for” analysis would “bring virtually all personal injury lawsuit damages
within the scope of the provision, since: but for the personal injury, there would be no lawsuit, and
but for the lawsuit, there would be no damages.” O’Gilvie v. United States, 519 U.S. 79, 82, 117
S. Ct. 452, 136 L. Ed. 2d 454 (1996) (internal quotation marks omitted). Rather, the “on account of”
phrase requires that the damages be awarded by reason of, or because of, a personal physical injury.
Id. at 83. See also Greer, 207 F.3d at 327 (requiring that “the agreement was executed ‘in lieu’ of
the prosecution of the tort claim and ‘on account of’ the personal injury”). Petitioners bear the
burden of “present[ing] concrete evidence demonstrating the precise causal connection” between the
personal physical injuries and the settlement payment. Id. at 334.
12
No. 09-1485
The settlement agreement does not include any express language of purpose. It only provides
that “Bank One shall pay the total sum of $49,000” and that the “suit shall be dismissed with
prejudice.” (App. at 206). Petitioners’ only evidence arguably supporting the purpose necessary for
exclusion under § 104(a)(2) is Mrs. Stadnyk’s testimony that her attorney, the attorney for Bank One,
and the mediator all advised her that the settlement proceeds would not be subject to income tax.
However, even assuming the attorneys did give her this advice, there is no evidence concerning the
basis for the advice. The attorneys may have advised Mrs. Stadnyk based on any number of incorrect
beliefs, such as the belief that all personal injury awards are excludable from income, as Petitioner
argues here, or the belief that a physical injury was unnecessary. Given that the settlement agreement
included no indication that Bank One paid the settlement on account of any physical injury and that
all of Mrs. Stadnyk’s damages were stated in terms of emotional distress, Petitioners have failed to
offer any concrete evidence demonstrating a causal connection between any physical injury and the
settlement award.
Thus, Petitioner’s settlement award may not be excluded from taxation under § 104(a)(2).
IV. The Constitutionality of I.R.C. § 104(a)(2)
Petitioners argue that § 104(a)(2), as amended by Congress in 1996, violates the Sixteenth
Amendment to any extent that it purports to subject compensation for personal injuries to income
tax. According to Petitioners, the Sixteenth Amendment only allows Congress to impose a tax on
“incomes,” and a personal injury recovery is not income because it is not an accession to wealth.
In arguing that Congress cannot comply with the Sixteenth Amendment by subjecting a personal
injury recovery to income tax, Petitioners have recycled their argument that a personal injury award
13
No. 09-1485
does not classify as income because it is compensatory rather than an accession to wealth. Thus,
given our conclusion that a personal injury award is income under § 61(a), we must also reject
Petitioner’s related constitutional argument. See Murphy, 493 F.3d at 186.
In the alternative, Petitioners argue in the last two sentences of their brief that § 104(a)(2) is
unconstitutional because it is a direct tax and is nonapportioned. Because Petitioners did not raise
thus argument below, it is waived. Armstrong v. City of Melvindale, 432 F.3d 695, 700 (6th Cir.
2006). Furthermore, Petitioner’s conclusory assertion is not enough to raise the issue now. Leary
v. Livingston County, 528 F.3d 438, 449 (6th Cir. 2008) (“It is a settled appellate rule that issues
averred in a perfunctory manner, unaccompanied by some effort at developed argumentation, are
deemed waived.”).
However, assuming Petitioners have properly presented this argument, it is meritless. Even
if the Court were to find that the damages award is not income within the meaning of the I.R.C. §
61(a) and the Sixteenth Amendment, a tax on Mrs. Stadnyk’s settlement award would only be
unconstitutional if it were a direct tax requiring apportionment or not uniform. See U.S. Const. art.
I, § 8 (“all duties, imposts, and excises shall be uniform throughout the United States”); U.S. Const.
art. I, § 9 (“No capitation, or other direct, tax shall be laid, unless in proportion to the census or
enumeration herein before directed to be taken.”).
The tax on Petitioner’s damages award is not a direct tax. Only three taxes are definitively
known to be direct: (1) a capitation, (2) a tax upon real property, and (3) a tax upon personal
property. See Murphy, 493 F.3d at 181. However, a tax on damages sustained on account of
personal injury is not a tax on property; rather, it is a tax on the receipt of a damages award. Id. at
14
 No. 09-1485
184 (“it does not appear that this tax is upon ownership; rather, as the Government points out, [the
taxpayer] is taxed only after she receives a compensatory award, which makes the tax seem to be laid
upon a transaction”). Thus, it need not be apportioned. See Tyler v. United States, 281 U.S. 497,
502, 50 S. Ct. 356, 4 L. Ed. 991 (1930) (“A tax laid upon the happening of an event, as distinguished
from its tangible fruits, is an indirect tax which Congress . . . undoubtably may impose.”).
Moreover, so long as Congress has the power to levy the tax, it is irrelevant whether it was
proper for the tax to be labeled income tax or collected pursuant to § 61(a). See Penn Mut. Indemn.
Co. v. Comm’r, 277 F.2d 16, 20 (3d Cir. 1960) (“[i]t is not necessary to uphold the validity of the
tax imposed by the United States that the tax itself bear an accurate label”); Simmons v. United
States, 308 F.2d 160, 166 n.21 (4th Cir. 1962) (“if Congress has the power to impose the tax in
question, it is not material that it call the tax one on income, for it has been clearly established that
the labels used do not determine the extent of the taxing power”).
Finally, even assuming the tax in this case is an excise subject to the uniformity requirement,
the tax in this case meets this standard. See United States v. Ptasynski, 462 U.S. 74, 82, 103 S. Ct.
2239, 76 L. Ed. 2d 427 (1983) (“tax is uniform when it operates with the same force and effect in
every place where the subject of it is found”) (internal citations and quotations omitted).
Thus, the Tax Court did not err by concluding that I.R.C. § 104(a)(2) does not violate the
Constitution.
CONCLUSION
15
No. 09-1485
Because the Tax Court properly found that Petitioners owe income taxes on the damages
award received pursuant to their settlement with Bank One and that I.R.C. § 104(a)(2) does not
violate the Constitution, we AFFIRM the Tax’s Court’s order.
16