Compensatory Damage Awards for Nonphysical Personal Injuries: The Murphy Pendulum

The Murphy case involves the question of whether compensatory damage awards received for nonphysical personal injury are subject to the federal income tax. Such awards had been excluded from a taxpayer's gross income since 1918, but in 1996, Congress amended I.R.C. Sec. 104(a)(2) with the intention of taxing these awards. The taxpayer (Murphy) received an award for nonphysical personal injuries after the 1996 amendment and has argued in three judicial proceedings that, despite the amendment, her award is not taxable. This paper traces the path of the Murphy case through the IRS and the courts, discusses the income tax issues raised in the various forums, and makes recommendations to clarify and improve the federal income tax treatment of compensatory damages for nonphysical personal injury.

The Influence of Client Importance on Juror Evaluations of Auditor Liability

This study examines whether client importance affects jurors' evaluations of auditors. Specifically, we examine whether client importance is significantly related to juror evaluations of responsibility and blame as well as auditor liability and damage awards. The results indicate that when an auditor is involved in litigation associated with an audit client that is financially more important to the auditor, participants evaluated the auditor as less objective, more blameworthy, and more deserving of punishment. Client importance is also found to significantly affect jurors' liability assessments. Further analysis indicates the effects of client importance on liability assessments can be attributed to independence perceptions. Despite these differences, results indicate only a marginally significant influence of client importance on punitive damage awards and no influence on compensatory damage awards.