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Federal Court Finds Compensatory Damages for Non-Physical Injuries Are Not Taxable.

The United States Court of Appeals for the District of Columbia has held that compensatory damages received for emotional upset and harm to reputation, but not connected to any physical injury, are not taxable as income. See Murphy v. I.R.S. (D.C. Cir. Aug. 22, 2006). The court's decision is the first federal appeals court decision to rule on the taxability of compensatory damages not connected to physical injuries.
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