Baseball Crank
Covering the Front and Back Pages of the Newspaper
August 22, 2006
LAW: Even The Taxman Has Limits

In a decision handed down today by the DC Circuit and authored by onetime Reagan Supreme Court nominee Douglas Ginsburg (and joined, FWIW, by Judges Janice Rogers Brown and Judith Rogers), the court in Murphy v. IRS concluded that taxation of an award of compensatory damages for emotional distress and loss of reputation is unconstitutional because such restitution, unlike compensation for lost wages (which replaces taxable income), is not "income" within the meaning of the Sixteenth Amendment and thus is beyond the federal government's enumerated power to tax. (H/T Bashman).

The Sixteenth Amendment, adopted in 1913 after 19th century Supreme Court decisions striking down the income tax, provides:

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

The Murphy decision is somewhat limited in scope, given the broad definitions of "income" previously adopted by the Supreme Court in defining the scope of the Sixteenth Amendment:

When it first construed [the term "incomes" in the Sixteenth Amendment] in Eisner v. Macomber, 252 U.S. 189, 207 (1920), the Supreme Court held the taxing power extended to any "gain derived from capital, from labor, or from both combined." Later, after explaining that Eisner was not "meant to provide a touchstone to all future gross income questions," the Court added that under the [Tax Code] -- and, by implication, under the Sixteenth Amendment -- the Congress may "tax all gains" or "accessions to wealth." Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 430-31 (1955).

Slip op. at 10. As the court notes, the exception to that rule is where gains constitute "a restoration of capital." Id. This decision is, to some extent, merely an application of the exception, although the court does spend a good deal of effort examining the 1913-era understanding of "income" and compensatory damages by examining contemporaneous legislation and court decisions. Slip op. at 18-23. Nonetheless, it is heartening to see a court take seriously the principle of enumerated powers with regard to federal legislation:

At the outset, we reject the Government's breathtakingly expansive claim of congressional power under the Sixteenth Amendment -- upon which it founds the more far-reaching arguments it advances here. The Sixteenth Amendment simply does not authorize the Congress to tax as "incomes" every sort of revenue a taxpayer may receive. As the Supreme Court noted long ago, the "Congress cannot make a thing income which is not so in fact." Burk-Waggoner Oil Ass'n v. Hopkins, 269 U.S. 110, 114 (1925). Indeed, because the "the power to tax involves the power to destroy," McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 431 (1819), it would not be consistent with our constitutional government, and the sanctity of property in our system, merely to rely upon the legislature to decide what constitutes income.

Slip op. at 15. Orin Kerr thinks the Supreme Court will end up taking this one if asked to do so.

UPDATE: Marty Lederman asks some interesting questions about whether there was pre-existing authority for this particular tax outside of the 16th Amendment. Not being versed in the pre-1913 caselaw, I couldn't say; it would appear that neither the government nor the court considered that possibility.

Posted by Baseball Crank at 12:48 PM | Law 2006-08 | Comments (8) | TrackBack (0)

I like this opinion quite a bit ideologically (Rogers-Brown, baby), and from what I've read of your synopsis, Crank, I like it jurisprudentially.

Interesting to see what the Surpemes'll do if they grant cert.

Posted by: Mike at August 22, 2006 1:31 PM

I almost hate to bring this up because it is so American learing into private lives sort of stuff but I have a question for you lawyers about a legal process and why things are happening the way they are. Sigh. It's about this guy in Thailand who confessed to the Jon Benet Ramsey murder. They read all these charges against him in his extradition hearing today.

My question is: Is the state of Colorado pressing these charges against him to get him extradited so that he can possibly stand trial for this? The follow up would be: Is this honestly how it really works?

It seems that there is little credible evidence to back up this confession that he did this murder. Whether he is just one of the type of nuts that confesses to things due to some weird psychological compulsion or because he was in a Bangkok prison and felt like that probably was not a good place to spend any serious time it just seems that they are more likely scenarios than him having actually done the deed. Wouldn't you, if locked in some foreign prison, just start confessing to high profile U.S. crimes if you felt like it would get you extradited? Can anyone clarify for us lay people besieged by the media on this but without any real useful information? Thanks.

Posted by: jim at August 22, 2006 4:11 PM

That is a great question Jim and I hope Crank and the gang will address it. I agree with your conclusion, I don't think he did it either. My only guess is that one of the sick puppies that did taped it and he had it in his porn stash.

Posted by: maddirishman at August 23, 2006 9:40 AM

jim and irish,

I'm a lawyer as well. I haven't paid much attention to these goings-on, for reasons that would take too long to explain in a blog comment, but in a general sense, extradition is more or less an extra step in the beginnings of a criminal proceeding. The early steps of a criminal proceeding, including things like an indictment, preferment of charges, etc., are procedural steps that the prosecution must complete to demonstrate to the satisfaction of the law that they have probable cause to believe that the accused comitted the crime of which he is accused. After completing those steps, the law then gives them permission, so to speak, to open a full investigation into the matter for the purpose of gathering evidence to satisfy a much higher standard, that the now-defendant is guilty of the charges beyond a reasonable doubt. The prosecution may, in doing so, discover that they were wrong, or that they simply can't prove the defendant's guilt beyond a reasonable doubt because there's not sufficient evidence to satisfy the standard, but to get to that point, the real evidence gathering, they have to first demonstrate that probable cause exists. In order to do that, and to move into the evidence-gathering phase, they need, among other things, to have the suspect in custody, or at least in the jurisdiction, and get him through the initial processing. If the suspect is already present in the jurisdiction, no problem; if he's not, then they need to get him there. Hence the extradition proceeding. And, as a procedural matter, before a foreign jurisdiction will agree to extradite someone in their jurisdiction, they're going to want to know why they should do so. Hence the reading of the charges against him in the extradition hearing.

What will they eventually end up charging this guy with? Well, that depends on what they turn up once they get him in Colorado and conduct their full investigation. The reading of whatever litany of charges they recited in the hearing is basically a procedural matter, to satisfy the jurisdiction currently holding him that they have real cause to believe he committed a crime, and plan to bring a case against him in Colorado.

The thing with the media is this: they treat every single little step in a prosecution as if the verdict is being delivered right there. In one sense I don't blame them, because non-lawyers simply wouldn't know that a lot of this stuff is just pro forma. In another sense I do, because they need their story, so they don't bother to figure out whether something is really important or not, but rather treat everything as if the case hinges on it. The one thing they do that annoys me above all else is when they report that a celebrity who was charged with something plead not guilty. EVERYONE pleads not guilty. Again, it's a procedural step, meaning only that the defendant plans to contest the charges. It's the legal equivalent of reporting that someone breathed. In any case, the actual list of charges, should any be brought, will likely be at least somewhat different than what you heard on TV. But yeah, they will end up conducting a full investigation, implausible as this guy's story may sound on the surface.

Hope this was helpful, not TOO long, and at least somewhat clear. :)

Posted by: Thom at August 24, 2006 10:52 AM

Thanks for the good comment. I hope I have not given anyone the impression that I intend to write another word about that case.

Posted by: The Crank at August 24, 2006 10:54 AM


Thanks, likewise I have no real interest in this case itself just the procedural stuff involved with this one individual.

Follow up: So if they start investigating him and find out that he is crazy as a $3 bill do they ship his butt back to Thailand or does he end up being charged with some sort of crime that would be the equivalent of interfering with the legal process (false confession?)?

Posted by: jim at August 24, 2006 11:17 AM


Off-hand, I'm not sure technically what the charge would be, but yeah, I'm sure there's a criminal cause of action akin to filing a false police report with which they could charge him. Also, if he actually (and stupidly) took it far enough to make a statement under oath, then he would have perjured himself. Personally, I'd be in favor of letting one of JonBenet Ramsey's non-parental relatives beat him with a rubber hose for about a half hour.

As for sending him back to Thailand, I never did make it far enough into any of the news reports to hear exactly why he was there, but I can just imagine (though I'd rather not). As per Crank's comment above, big, sordid, public cases like this actually tend to turn lawyers off. In any case, if he was extradited first from Thailand to the U.S. while serving a sentence in Thailand for some offense over there, then I think he would be sent back, yes. An interesting followup to that would be whether, under Thai law, he'd be charged similarly to the above, for wasting everyone's time, so to speak; I'm no authority on Thai law, so I'll leave that one alone. Do they have caning in Thailand, or is that only Singapore? :)

Posted by: Thom at August 24, 2006 12:56 PM

Let me third Crank & Thom: another lawyer who gives less than the proverbial rat's butt about this sordid mess.

Nonetheless, that was a cogent explanation, Thom.

Posted by: Mike at August 24, 2006 3:22 PM
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