Yes. That extra 'punishment' money is taxable income. The tax law is written very broadly to include 'income from any source whatever.' An older case suggested income had to come from work or investments, but that idea is too narrow. When you get money that makes you wealthier, that you actually receive, and that you can spend as you please, it's income. It doesn't matter if you got the money as a surprise or because someone else was being punished; it's still a financial gain for you, and you have to pay taxes on it.

Yes, they do have to include it. The law says that all money you get control over counts as income unless the law says it doesn't. Punishment money from lawsuits is not one of the exceptions, so it has to be included in taxable income. This decision is based on the idea that Congress wants to tax all income, with only a few specific exceptions. The fact that the money was meant to punish the wrongdoer doesn't change the fact that it's income for the person who received it. It wouldn't make sense to say that money from actual damages is taxable but extra punishment money from the same wrongdoing is not, unless Congress clearly intended to make that exception.

I disagree with the majority decision because I think money given as punishment is different from money you earn. The majority says every bit of money counts as income, but I see punitive damages as a penalty against bad behavior, not a reward or gain for someone. This dissent is different because it makes it clear that because punitive damages are meant to punish, they should not be treated the same as regular income for tax purposes.

<?xml version="1.0" encoding="utf-8"?> <opinion type="majority"> <author id="b515-5"> Mr. Chief Justice Warren </author> delivered the opinion of the Court. This litigation involves two cases with independent factual backgrounds yet presenting the identical issue. The two cases were consolidated for argument before the Court of Appeals for the Third Circuit and were heard en banc. The common question is whether money received as exemplary damages for fraud or as the punitive two-thirds portion of a treble-damage antitrust recovery must be reported by a taxpayer as gross income under § 22 (a) of the Internal Revenue Code of 1939, <a class="footnote" href="#fn1" id="fn1_ref"> 1 </a> In a single opinion, 211 F. 2d 928, the Court of Appeals affirmed the Tax Court’s separate rulings in favor of the taxpayers. 18 T. C. 860; 19 T. C. 637. Because of the frequent recurrence of the question and differing interpretations by the lower courts of this Court’s decisions bearing upon the problem, we granted the Commissioner of Internal Revenue’s ensuing petition for certiorari. 348 U. S. 813. The facts of the cases were largely stipulated and are not in dispute. So far as pertinent they are as follows: Commissioner v. Glenshaw Glass Co. —The Glenshaw Glass Company, a Pennsylvania corporation, manufactures glass bottles and containers. It was engaged in protracted litigation with the Hartford-Empire Company, which manufactures machinery of a character used by Glenshaw. Among the claims advanced by Glenshaw *428 were demands for exemplary damages for fraud <a class="footnote" href="#fn2" id="fn2_ref"> 2 </a> and treble damages for injury to its business by reason of Hartford’s violation of the federal antitrust laws. <a class="footnote" href="#fn3" id="fn3_ref"> 3 </a> In December, 1947, the parties concluded a settlement of all pending litigation, by which Hartford paid Glenshaw approximately $800,000. Through a method of allocation which was approved by the Tax Court, 18 T. C. 860, 870-872, and which is no longer in issue, it was ultimately determined that, of the total settlement, $324,529.94 represented payment of punitive damages for fraud and antitrust violations. Glenshaw did not report this portion of the settlement as income for the tax year involved. The Commissioner determined a deficiency claiming as taxable the entire sum less only deductible legal fees. As previously noted, the Tax Court and the Court of Appeals upheld the taxpayer. Commissioner v. William Goldman Theatres, Inc.— William Goldman Theatres, Inc., a Delaware corporation operating motion picture houses in Pennsylvania, sued Loew’s, Inc., alleging a violation of the federal antitrust laws and seeking treble damages. After a holding that a violation had occurred, William Goldman Theatres, Inc. v. Loew’s, Inc., 150 F. 2d 738, the case was remanded to the trial court for a determination of damages. It was found that Goldman had suffered a loss of profits equal to $125,000 and was entitled to treble damages in the sum of $375,000. William Goldman Theatres, Inc. v. Loew’s, Inc., 69 F. Supp. 103, aff’d, 164 F. 2d 1021, cert. denied, 334 U. S. 811. Goldman reported only $125,000 of the recovery as gross income and claimed that the $250,000 *429 balance constituted punitive damages and as such was not taxable. The Tax Court agreed, 19 T. C. 637, and the Court of Appeals, hearing this with the Glenshaw case, affirmed. 211 F. 2d 928. It is conceded by the respondents that there is no constitutional barrier to the imposition of a tax on punitive damages. Our question is one of statutory construction: are these payments comprehended by § 22 (a) ? The sweeping scope of the controverted statute is readily apparent: <blockquote id="b517-6"> “SEC. 22. GROSS INCOME. </blockquote> <blockquote id="b517-7"> “(a) General Definition. — ‘Gross income’ includes gains, profits, and income derived from salaries, wages, or compensation for personal service ... of whatever kind and in whatever form paid, or from professions, vocations, trades, businesses, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, or gains or profits and income derived from any source whatever. . . .” (Emphasis added.) <a class="footnote" href="#fn4" id="fn4_ref"> 4 </a> </blockquote> This Court has frequently stated that this language was used by Congress to exert in this field “the full measure of its taxing power.” Helvering v. Clifford, 309 U. S. 331, 334; Helvering v. Midland Mutual Life Ins. Co., 300 U. S. 216, 223; Douglas v. Will cuts, 296 U. S. 1, 9; Irwin v. Gavit, 268 U. S. 161, 166. Respondents contend that punitive damages, characterized as “windfalls” flowing from the culpable conduct of third parties, are not within the scope of the section. But Congress applied no limitations as to the source of taxable receipts, nor restrictive *430 labels as to their nature. And the Court has given a liberal construction to this broad phraseology in recognition of the intention of Congress to tax all gains except those specifically exempted. Commissioner v. Jacobson, 336 U. S. 28, 49; Helvering v. Stockholms Enskilda Bank, 293 U. S. 84, 87-91. Thus, the fortuitous gain accruing to a lessor by reason of the forfeiture of a lessee’s improvements on the rented property was taxed in Helvering v. Bruun, 309 U. S. 461. Cf. Robertson v. United States, 343 U. S. 711; Rutkin v. United States, 343 U. S. 130; United States v. Kirby Lumber Co., 284 U. S. 1. Such decisions demonstrate that we cannot but ascribe content to the catchall provision of § 22 (a), “gains or profits and income derived from any source whatever.” The importance of that phrase has been too frequently recognized since its first appearance in the Revenue Act of 1913 <a class="footnote" href="#fn5" id="fn5_ref"> 5 </a> to say now that it adds nothing to the meaning of “gross income.” Nor can we accept respondents’ contention that a narrower reading of § 22 (a) is required by the Court’s characterization of income in Eisner v. Macomber, 252 U. S. 189, 207, as “the gain derived from capital, from labor, or from both combined.” <a class="footnote" href="#fn6" id="fn6_ref"> 6 </a> The Court was there endeavoring to determine whether the distribution of a corporate stock dividend constituted a realized gain to the shareholder, or changed “only the form, not the essence,” of *431 his capital investment. Id., at 210. It was held that the taxpayer had “received nothing out of the company’s assets for his separate use and benefit.” Id., at 211. The distribution, therefore, was held not a taxable event. In that context — distinguishing gain from capital — the definition served a useful purpose. But it was not meant to provide a touchstone to all future gross income questions. Helvering v. Bruun, supra, at 468-469; United States v. Kirby Lumber Co., supra, at 3. Here we have instances of undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion. The mere fact that the payments were extracted from the wrongdoers as punishment for unlawful conduct cannot detract from their character as taxable income to the recipients. Respondents concede, as they must, that the recoveries are taxable to the extent that they compensate for damages actually incurred. It would be an anomaly that could not be justified in the absence of clear congressional intent to say that a recovery for actual damages is taxable but not the additional amount extracted as punishment for the same conduct which caused the injury. And we find no such evidence of intent to exempt these payments. It is urged that re-enactment of § 22 (a) without change since the Board of Tax Appeals held punitive damages nontaxable in Highland Farms Corp., 42 B. T. A. 1314, indicates congressional satisfaction with that holding. Re-enactment — particularly without the slightest affirmative indication that Congress ever had the Highland Farms decision before it — is an unreliable indicium at best. Helvering v. Wilshire Oil Co., 308 U. S. 90, 100-101; Koshland v. Helvering, 298 U. S. 441, 447. Moreover, the Commissioner promptly published his nonacquiescence in this portion of the Highland Farms holding <a class="footnote" href="#fn7" id="fn7_ref"> 7 </a> and has, *432 before and since, consistently maintained the position that these receipts are taxable. <a class="footnote" href="#fn8" id="fn8_ref"> 8 </a> It therefore cannot be said with certitude that Congress intended to carve an exception out of § 22 (a)’s pervasive coverage. Nor does the 1954 Code’s <a class="footnote" href="#fn9" id="fn9_ref"> 9 </a> legislative history, with its reiteration of the proposition that' statutory gross income is “all-inclusive," <a class="footnote" href="#fn10" id="fn10_ref"> 10 </a> give support to respondents’ position. The definition of gross income has been simplified, but no effect upon its present broad scope was intended. <a class="footnote" href="#fn11" id="fn11_ref"> 11 </a> Certainly punitive damages cannot reasonably be classified as gifts, cf. Commissioner v. Jacobson, 336 U. S. 28, 47-52, nor do they come under any other exemption provision in the Code. We would do violence to the plain meaning of the statute and restrict a clear legislative attempt to *433 bring the taxing power to bear upon all receipts constitutionally taxable were we to say that the payments in question here are not gross income. See Helvering v. Midland Mutual Life Ins. Co., supra, at 223. Reversed. <judges id="b521-5"> Mr. Justice Douglas dissents. </judges> <judges id="b521-6"> Mr. Justice Harlan took no part in the consideration or decision of this case. </judges> <div class="footnotes"><div class="footnote" id="fn1" label="1"> <a class="footnote" href="#fn1_ref"> 1 </a> 53 Stat. 9, 53 Stat. 574, 26 U. S. C. § 22 (a). </div><div class="footnote" id="fn2" label="2"> <a class="footnote" href="#fn2_ref"> 2 </a> For the bases of Glenshaw’s claim for damages from fraud, see Shawkee Manufacturing Co. v. Hartford-Empire Co., 322 U. S. 2701; Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U. S. 238. </div><div class="footnote" id="fn3" label="3"> <a class="footnote" href="#fn3_ref"> 3 </a> See Hartford-Empire Co. v. United States, 323 U. S. 386, 324 U. S. 570. </div><div class="footnote" id="fn4" label="4"> <a class="footnote" href="#fn4_ref"> 4 </a> See note 1, supra. </div><div class="footnote" id="fn5" label="5"> <a class="footnote" href="#fn5_ref"> 5 </a> 38 Stat. 114,167. </div><div class="footnote" id="fn6" label="6"> <a class="footnote" href="#fn6_ref"> 6 </a> The phrase was derived from Stratton’s Independence, Ltd. v. Howbert, 231 U. S. 399, 415, and Doyle v. Mitchell Bros. Co., 247 U. S. 179, 185, two cases construing the Revenue Act of 1909, 36 Stat. 11, 112. Both taxpayers were “wasting asset” corporations, one being engaged in mining, the other in lumbering operations. The definition was applied by the Court to demonstrate a distinction between a return on capital and “a mere conversion of capital assets.” Doyle v. Mitchell Bros. Co., supra, at 184. The question raised by the instant case is clearly distinguishable. </div><div class="footnote" id="fn7" label="7"> <a class="footnote" href="#fn7_ref"> 7 </a> 1941-1 Cum. Bull. 16. </div><div class="footnote" id="fn8" label="8"> <a class="footnote" href="#fn8_ref"> 8 </a> The long history of departmental rulings holding personal injury recoveries nontaxable on the theory that they roughly correspond to a return of capital cannot support exemption of punitive damages following injury to property. See 2 Cum. Bull. 71; 1-1 Cum. Bull. 92, 93; VII-2 Cum. Bull. 123; 1954-1 Cum. Bull. 179, 180. Damages for personal injury are by definition compensatory only. Punitive damages, on the other hand, cannot be considered a restoration of capital for taxation purposes. </div><div class="footnote" id="fn9" label="9"> <a class="footnote" href="#fn9_ref"> 9 </a> 68A Stat. 3 et seq. Section 61 (a) of the Internal Revenue Code of 1954, 68A Stat. 17, is the successor to § 22 (a) of the 1939 Code. </div><div class="footnote" id="fn10" label="10"> <a class="footnote" href="#fn10_ref"> 10 </a> H. R. Rep. No. 1337, 83d Cong., 2d Sess. a18; S. Rep. No. 1622, 83d Cong., 2d Sess. 168. </div><div class="footnote" id="fn11" label="11"> <a class="footnote" href="#fn11_ref"> 11 </a> In discussing § 61 (a) of the 1954 Code, the House Report states: <blockquote id="b520-10"> “This section corresponds to section 22 (a) of the 1939 Code. While the language in existing section 22 (a) has been simplified, the all-inclusive nature of statutory gross income has not been affected thereby. Section 61 (a) is as broad in scope as section 22 (a). </blockquote> <blockquote id="b520-12"> “Section 61 (a) provides that gross income includes ‘all income from whatever source derived.’ This definition is based upon the 16th Amendment and the word ‘income’ is used in its constitutional sense.” H. R. Rep. No. 1337, supra, note 10, at a18. </blockquote> A virtually identical statement appears in S. Rep. No. 1622, supra, note 10, at 168. </div></div></opinion>

All "accessions to wealth, clearly realized, and over which the taxpayers have complete dominion" are income.

—made it clear that Congress, in defining gross income, intended to exert "the full measure of its taxing power" and "applied no limitations as to the source of taxable receipts, nor restrictive labels as to their nature," and pointed out that the Court "has given a liberal construction to this broad phraseology [[1]] in recognition of the intention of Congress to tax all gains except …

Section 61 of the Internal Revenue Code defines gross income as "all income from whatever source derived."

—explaining that § 61 (a)'s definition of gross income "is based upon the [Sixteenth] Amendment and the word `income'is used in its constitutional sense

The Supreme Court has consistently given this definition of gross income a liberal construction "in recognition of the intention of Congress to tax all gains except those specifically exempted."

In this antitrust action, the Supreme Court described a punitive-damages award as an "undeniable accession [] to wealth, clearly realized, and over which the taxpayers have complete dominion. The mere fact that the payments were extracted from wrongdoers as punishment for unlawful conduct cannot detract from their character as taxable income to the recipients

Section 61 (a) defines gross income as "all income from whatever source derived" and broadly encompasses any accession to a taxpayer's wealth.

—the Supreme Court held that money received as exemplary damages for fraud or as the punitive two-thirds portion of a treble-damage antitrust recovery must be reported by a taxpayer as gross income.

Yes. Money received as punitive damages constitutes gross income subject to federal income tax. The language of § 22(a) of the Internal Revenue Code, defining gross income as 'gains or profits and income derived from any source whatever,' was intended by Congress to exert the full measure of its taxing power. The prior, more restrictive definition of income from *Eisner v. Macomber* as 'the gain derived from capital, from labor, or from both combined' was not meant to be an exhaustive touchstone for all future income questions. Punitive damages are 'undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion.' The mere fact that the payments were extracted from wrongdoers as punishment cannot detract from their character as taxable income to the recipients, and it would be an anomaly to tax compensatory damages but not the punitive portion arising from the same unlawful conduct.

Yes. The payments in question are gross income. Congress intended § 22 (a) to exert the full measure of its taxing power, and the statute's language includes all gains and profits derived from any source whatever. The payments are undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion. The punitive nature of the damages does not detract from their status as taxable income. There is no clear congressional intent to exempt such payments from taxation, and they do not fall under any exemption provision in the Code. This interpretation is consistent with the constitutional sense of the word 'income' and the intention of Congress to tax all gains except those specifically exempted. The Court has given a liberal construction to this broad phraseology in recognition of the intention of Congress to tax all gains except those specifically exempted. The mere fact that the payments were extracted from the wrongdoers as punishment for unlawful conduct cannot detract from their character as taxable income to the recipients. It would be an anomaly that could not be justified in the absence of clear congressional intent to say that a recovery for actual damages is taxable but not the additional amount extracted as punishment for the same conduct which caused the injury.

I dissent from the opinion of the Court because I believe that the majority’s expansive reading of § 22(a) unjustifiably conflates punitive damages with traditional income. The majority holds that all accessions to wealth are taxable, yet punitive damages are intended solely as a means of penalizing wrongful conduct rather than compensating for a loss. This dissent differs from the majority by emphasizing that the punitive element of the damages—awarded to punish, not to benefit—should not be subjected to tax, because its core purpose is remedial and deterrent, not economic enrichment. Consequently, treating these sums as taxable income distorts the underlying legislative intent.

Commissioner of Internal Revenue v. Glenshaw Glass Co.

Case Podcast

Rule of Law:

The Legal Principle

Facts:

Procedural Posture:

How It Got Here

Issue:

Legal Question at Stake

Opinions:

Majority, Concurrences & Dissents

Analysis:

Why This Case Matters

Gunnerbot