The taxation of employment discrimination recoveries under federal civil rights statutes, according to the United States Supreme Court's pronouncement in United States v. Burke, turns on whether a particular claim is sufficiently "tort-like" to warrant exclusion from income as a personal injury. In place of the "tort-like" standard, Professor Mary L Heen offers a human capital approach that she believes is both more responsive to the goals of the civil rights statutes at issue and more consistent with income tax policy.

Like personal injuries in tort, injuries caused by employment discrimination diminish an individual's human capital-they are just as surely "personal" losses. Thus, Professor Heen posits that employment discrimination awards should be taxed like personal injury awards, i.e., excluded from income under§ 104(a)(2) of the Internal Revenue Code. Professor Heen first discusses the implications-both in theory and in practice-for tax and employment law raised by the taxation of employment discrimination awards. Next she analyzes the development of the law, culminating in a detailed discussion of the Supreme Court's decision in Burke.

Professor Heen then sets out a human capital approach in replacement of Burke's tort-like standard. Professor Heen concludes that economic recoveries such as back pay should be excluded from income as compensation for injury to human capital, and that back pay should be computed net of taxes at the remedial stage of the civil rights action. Noneconomic recoveries such as damages for pain and suffering should also be excluded, just as they are in the tort context. Punitive damages should be included in income, because they are not intended as compensation for the victim of discrimination. In addition to its theoretical consistency with tax and civil rights law, the human capital approach would be much easier to administer and would yield more predictable results.

Document Type


Publication Date


Included in

Tax Law Commons