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Civil Law - Punitive Damage Awards Supply Government With Tax Revenues

damages awarded personal income

The U.S. Supreme Court ruled in December of 1996 that punitive damages awarded in personal injury cases were taxable (O'glivie v. United States). In this case, the family of a woman who died of toxic shock syndrome was awarded $1.5 million in actual damages and $10 million in punitive damages from International Playtex Inc. The family paid federal income tax on the punitive damage award, but requested a refund, arguing that the Internal Revenue Service's definition of gross income does not include damages received from personal injuries or sickness awards. However, the Court held that the family's damages were not received "on account of personal injuries; hence, the gross-income exclusion provision does not apply and the damages are taxable." The Court reasoned that punitive damages are not awarded to compensate for injuries but "to punish reprehensible conduct and to deter its future occurrence."

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