It's been over two weeks now since the Murphy vs IRS decision was handed down by the Federal Appeals court, in which opinion Judge Ginsburg offered a sweeping repudiation of the theory that all litigation proceeds that aren't directly tied to physical injury or sickness are income, and therefore, taxable. The general reaction of tax professionals and court watchers is that the Murphy decision will be contested to the Supreme Court and eventually overturned, but I personally don't think it is a guarantee at all that it would be reversed.

However, my larger concern, and the theme of this particular post is to discuss my belief that the "settlement industry" is once again failing to seize the day and aggressively agree with this stunning decision and line up on the side of the broken and beaten in society, at least from a tax stand point.

Lets look at the facts. Murphy v IRS is largely a philosophical shift away from the concept that all proceeds from litigation that aren't directly tied to personal physical injury or sickness should be taxable. It is a repudiation of the Treasury and Big Government theory that because you were molested, because you were defamed, because you were wrongfully imprisoned you some how "earned income" for the return of your human capital that an award in those areas implies. I, and others in our business, have been troubled for a long time that there exists a gross inequity in that someone who is raped and beaten obtains a tax free award under section 104(a)(2) but that someone who is systematically molested, abused and traumatize mentally and emotionally over a period of years was in a position where there award was taxable.

Judge Ginsburg in his decision for the court largely attacked and swept away the techno/tax law babble that supported that flimsy argument and went to the heart of what is equitable and just. It is what Judges are supposed to do and he did it masterfully. My concern is that the fall out of this, if you read the blogs and news commentary on it, is that all the "tax and lobby guys", who typically have all the warmth, humor and joy of a rock, are upset that the Judge messed with their precious tax code in such a dramatic way, and as a matter of policy and protecting their turf, they want to see it reversed, "just because".

I think it would be a great PR and general business move if the Settlement Industry in the form of NSSTA, the SSP and the Life Insurance industry got their lobbyists out, went up to Congress and made it absolutely clear that we as an industry are choosing to side with molestation victims, wrongfully jailed prisoners, people who have been defamed and abused and ask to have the code amended permanently to correct this injustice and not leave it in the hands of the courts. Congress has the power to make this permanent, and I think it would be a bold and powerful statement by NSSTA and SSP to come out and proclaim our belief that the prior position was wrong and that we agree with Judge Ginsburg.

To often we are seen as the bad guys, the money changers in the Temple, who debate how many angel dance on the head of a pin, instead of looking after the broken, abused and beaten among us. Lets hope this doesn't turn into another "policy debate" but instead is seen as a chance to lead and demonstrate our firm belief in taking care of those who can't take care of themselves, or at the very least, not supporting those who would tax human suffering as income.