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WASHINGTON — The federal government may not tax the money plaintiffs receive as compensation for emotional distress and other intangible injuries, a federal appeals court said Tuesday. The U.S. Court of Appeals for the District of Columbia Circuit struck down as unconstitutional a portion of the tax code that said only compensation for physical injuries is tax exempt. The ruling affects only Washington, D.C., but, depending on whether the Internal Revenue Service appeals to the Supreme Court or decides to adopt the finding nationwide, it could mean the end of tax bills following a variety of trials, from civil rights disputes to employment discrimination cases. The court sided with Marrita Murphy, who paid $20,665 in taxes on a $70,000 judgment for emotional distress and injury to reputation following a 1994 whistleblower case against the New York Air National Guard. “The IRS was treating this as if someone received a windfall,” said Murphy’s attorney, David Colapinto. The court ruled that such awards were not income but “compensation for the loss of a personal attribute.” In that sense, they are akin to awards for physical injuries, which are tax exempt, the court said.

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