Burford v. United States, Civ. A. No. CV85-L-3138-S.
| Court | United States District Courts. 11th Circuit. United States District Court of Northern District of Alabama |
| Writing for the Court | LYNNE, Senior |
| Citation | 642 F. Supp. 635 |
| Parties | Ann P. BURFORD, Plaintiff, v. UNITED STATES of America, Defendant. |
| Decision Date | 29 July 1986 |
| Docket Number | Civ. A. No. CV85-L-3138-S. |
642 F. Supp. 635
Ann P. BURFORD, Plaintiff,
v.
UNITED STATES of America, Defendant.
Civ. A. No. CV85-L-3138-S.
United States District Court, N.D. Alabama, S.D.
July 29, 1986.
David M. Wooldridge, Sirote, Permutt, Friend, Friedman, Held & Apolinsky, Birmingham, Ala., for plaintiff.
Frank W. Donaldson, U.S. Atty., Caryl P. Privett, Asst. U.S. Atty., Birmingham, Ala.,
MEMORANDUM OPINION
LYNNE, Senior District Judge.
This action comes before the Court on cross motions for summary judgment. The plaintiff has brought this action for a refund of federal income tax. She contends that settlement proceeds of an Alabama wrongful death claim are excludable from gross income under Internal Revenue Code § 104(a)(2), despite a Revenue Ruling that holds such proceeds to be taxable income. The Court agrees with plaintiff's contention that Alabama wrongful death proceeds fall within the plain language of Section 104(a)(2) and grants her motion for summary judgment.
Factual Background
The facts that give rise to this action are neither complex nor disputed. Plaintiff Ann Burford pursued a wrongful death claim against the University of Alabama-Birmingham after her husband died during treatment at the U.A.B. Hospital. On August 15, 1984, the claim was settled before any lawsuit was filed; Mrs. Burford received $62,203.00 from the settlement after deduction of attorney's fees and costs.
Mrs. Burford included the settlement amount on her 1984 federal income tax return, then later amended her return to exclude that amount and claim a refund of $19,961.00. Mrs. Burford waited for more than six months for some indication from the Internal Revenue Service whether her claim would be allowed, then filed this suit.
Discussion
The Internal Revenue Service's refusal to allow Mrs. Burford's claim is grounded upon the Service's recent Revenue Ruling 84-108, 1984-29 I.R.B. 5. This Ruling reversed the previous position of the IRS and stated that proceeds of a claim obtained under Alabama's wrongful death statute1 are includable in the gross income of the recipient. The Court is of the opinion that Revenue Ruling 84-108 constitutes an unwarranted administrative amendment of the clear language of the Internal Revenue Code and cannot stand.
A. "Amounts received ... on account of personal injury"
The Internal Revenue Code broadly defines "gross income" to mean all income from whatever source derived, except for those categories of income specifically excluded by other Code sections. I.R.C. § 61(a). Section 104(a)(2) defines one of these statutory exceptions, excluding from gross 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 injuries or sickness." The dispositive question, therefore, is whether wrongful death proceeds fall within the "personal injuries" exception provided in Section 104(a)(2).
The starting place in the construction of any statute is with the language of the statute itself. The clear import of "any damages received ... on account of personal injuries" would seem to express clearly the Congressional intent to exclude wrongful death proceeds—regardless of whether those proceeds are classified as compensatory or punitive—from gross income. Indeed, this was the position of the Internal Revenue Service from its inception until July 16, 1984. See Revenue Ruling 75-47, 1975-1 C.B. 47. The Service's traditional position on punitive wrongful death proceeds was that "any damages, whether compensatory or punitive and whether a substitute for income or not, received on account of personal injuries or sickness are excludable from gross income." G.C.M. 35967 at 3, 4.2
The Service's position was reversed, however, with the publication of Revenue Ruling 84-108, which specifically discussed Alabama's wrongful death statute and concluded that proceeds under that statute did not fit within the exception of Section 104(a)(2).3 The Service noted that Alabama caselaw construing the wrongful death statute consistently has labeled damages obtained under that statute as punitive in nature. Revenue Ruling 84-108 concluded...
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Doe v. DiGenova, Civ. A. No. 82-0025.
...Inc. v. Hughey, 780 F.2d 221, 234 (3d Cir. 1985) (same). Moreover, the government clearly has a substantial interest in investigating 642 F. Supp. 635 potential fraud. See Whalen v. Roe, 429 U.S. at 598, 97 S.Ct. at 876 (noting state's "vital interest" in controlling distribution and preven......
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Miller v. Comm'r of Internal Revenue, Docket No. 21113-87.
...104(a)(2), depending upon the characterization of tort damages under various state laws. For example, in Burford v. United States, 642 F. Supp. 635 (N.D. Ala. 1986), the cause of action which produced punitive damages at the state court level was an action for wrongful death. (A wrongful de......
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Brabson v. US, Civ. A. No. 93-K-2288.
...serve "both to compensate the injured party and punish the wrongdoer" and are excludable under § 104(a)(2)); Burford v. United States, 642 F.Supp. 635, 638, n. 5 (N.D.Ala.1986) (though labeled "punitive," Alabama wrongful death awards compensate plaintiff for her loss and thus are excludabl......
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Horton v. Comm'r of Internal Revenue, 3386–91.
...from income, although this is not entirely clear.8 The Fourth Circuit apparently agreed with the holding in Burford v. United States, 642 F.Supp. 635 (N.D.Ala.1986), in which the District Court held that all the punitive damages received under the Alabama wrongful death statute were receive......
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Doe v. DiGenova, Civ. A. No. 82-0025.
...Inc. v. Hughey, 780 F.2d 221, 234 (3d Cir. 1985) (same). Moreover, the government clearly has a substantial interest in investigating 642 F. Supp. 635 potential fraud. See Whalen v. Roe, 429 U.S. at 598, 97 S.Ct. at 876 (noting state's "vital interest" in controlling distribution and preven......
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Brabson v. US, Civ. A. No. 93-K-2288.
...serve "both to compensate the injured party and punish the wrongdoer" and are excludable under § 104(a)(2)); Burford v. United States, 642 F.Supp. 635, 638, n. 5 (N.D.Ala.1986) (though labeled "punitive," Alabama wrongful death awards compensate plaintiff for her loss and thus are excludabl......
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Horton v. Comm'r of Internal Revenue, No. 3386–91.
...from income, although this is not entirely clear.8 The Fourth Circuit apparently agreed with the holding in Burford v. United States, 642 F.Supp. 635 (N.D.Ala.1986), in which the District Court held that all the punitive damages received under the Alabama wrongful death statute were receive......
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C.I.R. v. Miller, No. 89-1851
...'because of.' These phrases suggest causation." Id. at 339 (citation omitted). The court further relied upon Burford v. United States, 642 F.Supp. 635 (N.D.Ala.1986), which held that proceeds received as settlement of an action brought pursuant to Alabama's wrongful death statute were withi......