United States v. Burke

• Decision Date: 26 May 1992
• Docket Number: No. 91-42,91-42
• Citation: 119 L.Ed.2d 34,504 U.S. 229,112 S.Ct. 1867
• Parties: UNITED STATES, Petitioner v. Therese A. BURKE, Cynthia R. Center, and Linda G. Gibbs
• Court: U.S. Supreme Court

112 S.Ct. 1867

504 U.S. 229

119 L.Ed.2d 34

UNITED STATES, Petitioner

v Therese A. BURKE, Cynthia R. Center, and Linda G. Gibbs.

No. 91-42.

Argued Jan. 21, 1992.

Decided May 26, 1992.

Syllabus

As part of the settlement of a sex discrimination claim under Title VII of the Civil Rights Act of 1964, the Tennessee Valley Authority (TVA) paid backpay to affected employees, including respondents, from which it withheld federal income taxes. The Internal Revenue Service (IRS) disallowed respondents' claims for refund of the withheld taxes. In a subsequent refund action, the District Court ruled that, since respondents had obtained only backpay due them as a result of TVA's discriminatory underpayments rather than compensatory or other damages, the settlement proceeds could not be excluded from their gross incomes as "damages received . . . on account of personal injuries" under 26 U.S.C. § 104(a)(2). The Court of Appeals reversed, holding that TVA's discrimination constituted a personal, tort-like injury to respondents, and rejecting the Government's attempt to distinguish Title VII, which authorizes no compensatory or punitive damages, from other statutes thought to redress personal injuries.

Held: Backpay awards in settlement of Title VII claims are not excludable from gross income under § 104(a)(2). Pp. 233-242.

(a) IRS regulations formally link identification of a "personal injury" for purposes of § 104(a)(2) to traditional tort principles, referring to "prosecution of a legal suit or action based upon tort or tort type rights." 26 CFR § 1.104-1(c). In order to fall within the § 104(a)(2) exclusion, respondents must show that Title VII, the legal basis for their recovery of backpay, redresses a tort-like personal injury. Pp. 233-234.

(b) A hallmark of traditional tort liability is the availability of a broad range of damages to compensate the plaintiff for harm sustained. Title VII, however, permits the award of only backpay and other injunctive relief. Congress sought through Title VII to restore victims to the wage and employment positions they would have occupied absent discrimination, but declined, in contrast to other federal antidiscrimination statutes, to recompense victims for any of the other traditional harms associated with personal injury, such as pain and suffering, emotional distress, harm to reputation, or other consequential damages. Thus, Title VII cannot be said to redress a tort-like personal injury within the meaning of § 104(a)(2) and the applicable regulations. Pp. 234-242.

929 F.2d 1119 (CA6 1991), reversed.

BLACKMUN, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and WHITE, STEVENS, and KENNEDY, JJ., joined. SCALIA, J., and SOUTER, J., filed opinions concurring in the judgment. O'CONNOR, J., filed a dissenting opinion, in which THOMAS, J., joined.

Jeffrey P. Minear, Washington, D.C., argued, for petitioner.

Joseph E. Finley, Baltimore, Md., argued for respondents.

Justice BLACKMUN delivered the opinion of the Court.

In this case we decide whether a payment received in settlement of a backpay claim under Title VII of the Civil Rights Act of 1964, 78 Stat. 253, as amended, 42 Stat. § 2000e et seq., is excludable from the recipient's gross income under § 104(a)(2) of the federal Internal Revenue Code, 26 U.S.C. § 104(a)(2), as "damages received . . . on account of personal injuries."

I

The relevant facts are not in dispute. In 1984, Judy A. Hutcheson, an employee of the Tennessee Valley Authority (TVA), filed a Title VII action in the United States District Court for the Eastern District of Tennessee alleging that TVA had discriminated unlawfully in the payment of salaries on the basis of sex. The Office and Professional Employees International Union, which represented the affected employees, intervened. Among the represented employees were respondents Therese A. Burke, Cynthia R. Center, and Linda G. Gibbs.

The complaint alleged that TVA had increased the salaries of employees in certain male-dominated pay schedules, but had not increased the salaries of employees in certain female-dominated schedules. In addition, the complaint alleged that TVA had lowered salaries in some female-dominated schedules. App. in No. 90-5607 (CA6) (hereinafter App.), pp. 28-32 (Second Amended Complaint). The plaintiffs sought injunctive relief as well as backpay for all affected female employees. Id., at 33-34. The defendants filed a counterclaim against the Union alleging, among other things, fraud, misrepresentation, and breach of contract. Id., at 35.

After the District Court denied cross-motions for summary judgment, the parties reached a settlement. TVA agreed to pay $4,200 to Hutcheson and a total of $5,000,000 for the other affected employees, to be distributed under a formula based on length of service and rates of pay. Id., at 70-71, 76-77. Although TVA did not withhold taxes on the $4,200 for Hutcheson, it did withhold, pursuant to the agreement, federal income taxes on the amounts allocated to the other affected employees, including the three respondents here.¹ Respondents filed claims for refund for the taxes withheld from the settlement payments. The Internal Revenue Service (IRS) disallowed those claims. Respondents then brought a refund action in the United States District Court for the Eastern District of Tennessee, claiming that the settlement payments should be excluded from their respective gross incomes under § 104(a)(2) of the Internal Revenue Code as "damages received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal injuries or sickness." The District Court ruled that, because respondents sought and obtained only backwages due them as a result of TVA's discriminatory underpayments rather than compensatory or other damages, the settlement proceeds could not be excluded from gross income as "damages received . . . on account of personal injuries." 1990 WL 56155, 90-1 USTC ¶ 50,203 (1990).

The United States Court of Appeals for the Sixth Circuit, by a divided vote, reversed. 929 F.2d 1119 (1991). The Court of Appeals concluded that exclusion under § 104(a)(2) turns on whether the injury and the claim are "personal and tort-like in nature." Id., at 1121. "If the answer is affirmative," the court held, "then that is the beginning and end of the inquiry" (internal quotation omitted). Id., at 1123. The court concluded that TVA's unlawful sex discrimination constituted a personal, tort-like injury to respondents, and rejected the Government's attempt to distinguish Title VII, which authorizes no compensatory or punitive damages,² from other statutes thought to redress personal injuries. See id., at 1121-1123. Thus, the court held, the award of backpay pursuant to Title VII was excludable from gross income under § 104(a)(2).

The dissent in the Court of Appeals, 929 F.2d, at 1124, took the view that the settlement of respondents' claims for earned but unpaid wage differentials—wages that would have been paid and would have been subjected to tax absent TVA's unlawful discrimination—did not constitute compensation for "loss due to a tort," as required under § 104(a)(2). See id., at 1126.

We granted certiorari to resolve a conflict among the Courts of Appeals concerning the exclusion of Title VII backpay awards from gross income under § 104(a)(2).³ --- U.S. ----, 112 S.Ct. 47, 116 L.Ed.2d 25 (1991).

II

A.

The definition of gross income under the Internal Revenue Code sweeps broadly. Section 61(a), 26 U.S.C. § 61(a), provides that "gross income means all income from whatever source derived," subject only to the exclusions specifically enumerated elsewhere in the Code. As this Court has recognized, Congress intended through § 61(a) and its statutory precursors to exert "the full measure of its taxing power," Helvering v. Clifford, 309 U.S. 331, 334, 60 S.Ct. 554, 556, 84 L.Ed. 788 (1940), and to bring within the definition of income any "accessio[n] to wealth." Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431, 75 S.Ct. 473, 477, 99 L.Ed. 483 (1955). There is no dispute that the settlement awards in this case would constitute gross income within the reach of § 61(a). See Brief for Respondents 9-10.

The question, however, is whether the awards qualify for special exclusion from gross income under § 104(a), which provides in relevant part that "gross income does not include—

"(2) the amount of any damages received (whether by suit or agreement and whether as lump sums or periodic payments) on account of personal injuries or sickness. . . ." ⁴

Neither the text nor the legislative history of § 104(a)(2) offers any explanation of the term "personal injuries." ⁵ Since 1960, however, IRS regulations formally have linked identification of a personal injury for purposes of § 104(a)(2) to traditional tort principles: "The term 'damages received (whether by suit or agreement)' means an amount received . . . through prosecution of a legal suit or action based upon tort or tort type rights, or through a settlement agreement entered into in lieu of such prosecution." 25 Fed.Reg. 11490 (1960); 26 CFR § 1.104-1(c) (1991). See Threlkeld v. Commissioner, 87 T.C. 1294, 1305 (1986) ("The essential element of an exclusion under section 104(a)(2) is that the income involved must derive from some sort of tort claim against the payor. . . . As a result, common law tort law concepts are helpful in deciding whether a taxpayer is being compensated for a 'personal injury' ") (internal quotation omitted), aff'd, 848 F.2d 81 (CA6 1988).

A "tort" has been defined broadly as a "civil wrong, other than breach of contract, for which the court will provide a remedy in the form of an action for damages." See W. Keeton, D. Dobbs, R. Keeton & D. Owen, Prosser and Keeton on the Law of Torts 2 (1984). Remedial principles thus figure prominently in the definition and conceptualization of torts. See R. Heuston, Salmond on the Law of Torts 9 (...