Justice Blackmun, delivered the opinion of the Court.
In this case we decide whether a payment received in settlement of a backpay claim under Title VII of the Civil Rights Act of 1964, 78 Stat. 253, as amended, 42 U. S. C. § 2000e et seq., is excludable from the recipient's gross income under § 104(a)(2) of the federal Internal Revenue Code, 26 U. S. C. § 104(a)(2), as "damages received . . . on account of personal injuries."
The relevant facts are not in dispute. In 1984, Judy A. Hutcheson, an employee of the Tennessee Valley Authority (TVA), filed a Title VII action in the United States District
The complaint alleged that TVA had increased the salaries of employees in certain male-dominated pay schedules, but had not increased the salaries of employees in certain female-dominated schedules. In addition, the complaint alleged that TVA had lowered salaries in some femaledominated schedules. App. in No. 90-5607 (CA6) (hereinafter App.), pp. 28-32 (Second Amended Complaint). The plaintiffs sought injunctive relief as well as backpay for all affected female employees. Id., at 33-34. The defendants filed a counterclaim against the union alleging, among other things, fraud, misrepresentation, and breach of contract. Id., at 35.
After the District Court denied cross-motions for summary judgment, the parties reached a settlement. TVA agreed to pay $4,200 to Hutcheson and a total of $5 million for the other affected employees, to be distributed under a formula based on length of service and rates of pay. Id., at 70-71, 76-77. Although TVA did not withhold taxes on the $4,200 for Hutcheson, it did withhold, pursuant to the agreement, federal income taxes on the amounts allocated to the other affected employees, including the three respondents here.
The United States Court of Appeals for the Sixth Circuit, by a divided vote, reversed. 929 F.2d 1119 (1991). The Court of Appeals concluded that exclusion under § 104(a)(2) turns on whether the injury and the claim are "personal and tort-like in nature." Id., at 1121. "If the answer is in the affirmative," the court held, "then that is the beginning and end of the inquiry." Id., at 1123 (internal quotation marks omitted). The court concluded that TVA's unlawful sex discrimination constituted a personal, tort-like injury to respondents, and rejected the Government's attempt to distinguish Title VII, which authorizes no compensatory or punitive damages,
We granted certiorari to resolve a conflict among the Courts of Appeals concerning the exclusion of Title VII backpay awards from gross income under § 104(a)(2).
The definition of gross income under the Internal Revenue Code sweeps broadly. Section 61(a), 26 U. S. C. § 61(a), provides that "gross income means all income from whatever source derived," subject only to the exclusions specifically enumerated elsewhere in the Code. As this Court has recognized, Congress intended through § 61(a) and its statutory precursors to exert "the full measure of its taxing power," Helvering v. Clifford, 309 U.S. 331, 334 (1940), and to bring within the definition of income any "accessio[n] to wealth." Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431 (1955). There is no dispute that the settlement awards in this case would constitute gross income within the reach of § 61(a). See Brief for Respondents 9-10.
The question, however, is whether the awards qualify for special exclusion from gross income under § 104(a), which
Neither the text nor the legislative history of § 104(a)(2) offers any explanation of the term "personal injuries."
A "tort" has been defined broadly as a "civil wrong, other than breach of contract, for which the court will provide a remedy in the form of an action for damages." See W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on the Law of Torts 2 (1984). Remedial principles thus figure prominently in the definition and conceptualization of torts.
For example, the victim of a physical injury may be permitted, under the relevant state law, to recover damages not only for lost wages, medical expenses, and diminished future earning capacity on account of the injury, but also for emotional distress and pain and suffering. See Dobbs, at 540-551; Threlkeld v. Commissioner, 87 T. C., at 1300. Similarly, the victim of a "dignitary" or nonphysical tort
We thus agree with the Court of Appeals' analysis insofar as it focused, for purposes of § 104(a)(2), on the nature of the claim underlying respondents' damages award. See 929 F. 2d, at 1121; Threlkeld v. Commissioner, 87 T. C., at 1305. Respondents, for their part, agree that this is the appropriate inquiry, as does the dissent. See Brief for Respondents 9-12; post, at 250.
Title VII of the Civil Rights Act of 1964
It is beyond question that discrimination in employment on the basis of sex, race, or any of the other classifications protected by Title VII is, as respondents argue and this Court consistently has held, an invidious practice that causes grave harm to its victims. See Brief for Respondents 35-39; Griggs v. Duke Power Co., 401 U.S. 424 (1971). The fact that employment discrimination causes harm to individuals does not automatically imply, however, that there exists a tort-like "personal injury" for purposes of federal income tax law.
Indeed, in contrast to the tort remedies for physical and nonphysical injuries discussed above, Title VII does not allow awards for compensatory or punitive damages; instead, it limits available remedies to backpay, injunctions, and other equitable relief. See § 2000e-5(g); Patterson v. McLean Credit Union, 491 U.S. 164, 182, n. 4 (1989) (noting that a plaintiff in a Title VII action is "limited to a recovery of backpay"); Great American Fed. Sav. & Loan Assn. v. Novotny, 442 U.S. 366, 374-375 (1979); Sparrow v. Commissioner, 292 U. S. App. D. C. 259, 262-263, 949 F.2d 434, 437-
The Court previously has observed that Title VII focuses on "legal injuries of an economic character," see Albemarle Paper Co. v. Moody, 422 U.S. 405, 418 (1975), consisting specifically of the unlawful deprivation of full wages earned or due for services performed, or the unlawful deprivation of the opportunity to earn wages through wrongful termination. The remedy, correspondingly, consists of restoring victims, through backpay awards and injunctive relief, to the wage and employment positions they would have occupied absent the unlawful discrimination. See id., at 421 (citing 118 Cong. Rec. 7168 (1972)). Nothing in this remedial scheme purports to recompense a Title VII plaintiff for any of the other traditional harms associated with personal injury, such as pain and suffering, emotional distress, harm to reputation, or other consequential damages (e. g., a ruined credit rating). See Walker v. Ford Motor Co., 684 F.2d 1355, 1364-1365, n. 16 (CA11 1982).
No doubt discrimination could constitute a "personal injury" for purposes of § 104(a)(2) if the relevant cause of action evidenced a tort-like conception of injury and remedy. Cf. Curtis v. Loether, 415 U. S., at 195-196, n. 10 (noting that "under the logic of the common law development of a law of
It is so ordered.
Justice Scalia, concurring in the judgment.
Section 104(a)(2) of the Internal Revenue Code excludes from gross income "the amount of any damages received . . . on account of personal injuries or sickness. " 26 U. S. C. § 104(a)(2) (emphasis added). The Court accepts at the outset of its analysis the Internal Revenue Service (IRS) regulation (dating from 1960) that identifies "personal injuries" under this exclusion with the violation of, generically, "tort or tort type rights," 25 Fed. Reg. 11490 (1960); 26 CFR § 1.104-1(c) (1991)
In my view there is no basis for accepting, without qualification, the IRS' "tort rights" formulation, since it is not within the range of reasonable interpretation of the statutory text. See Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-845 (1984). In isolation, I suppose, the term "personal injuries" can be read to encompass injury to any noncontractual interest "`for which the court will provide a remedy in the form of an action for
See also Black's Law Dictionary 786 (6th ed. 1990).
In deciding whether the words go beyond their more narrow and more normal meaning here, the critical factor, in my view, is the fact that "personal injuries" appears not in isolation but as part of the phrase "personal injuries or sickness." As the Court has said repeatedly, "[t]he maxim noscitur a sociis, that a word is known by the company it keeps, while not an inescapable rule, is often wisely applied where a word is capable of many meanings in order to avoid the giving of unintended breadth to the Acts of Congress." Jarecki v. G. D. Searle & Co., 367 U.S. 303, 307 (1961). The term "sickness" connotes a "[d]iseased condition; illness; [or] ill health," Webster's New International Dictionary 2329-2330 (2d ed. 1950), and I think that its companion must similarly be read
The commonsense interpretation I suggest is supported as well by several other factors. First, the term "personal injuries or sickness" is used three other times in § 104(a), and in each instance its sense is necessarily limited to injuries to physical or mental health. See § 104(a)(1) (gross income does not include "amounts received under workmen's compensation acts as compensation for personal injuries or sickness " (emphasis added)); § 104(a)(3) (gross income does not include "amounts received through accident or health insurance for personal injuries or sickness " (emphasis added)); § 104(a)(4) (gross income does not include "amounts received as a pension, annuity, or similar allowance for personal injuries or sickness resulting from active service in the armed forces . . . or as a disability annuity payable under . . . the Foreign Service Act" (emphasis added)). When, sandwiched in among these provisions, one sees an exclusion for "the amount of any damages received . . . on account of personal injuries or sickness," one has little doubt what is intended, and it is not recovery for defamation (or other invasions of "personal" interests that do not, of necessity, harm the victim's physical or mental health). Second, the provision at issue here is a tax exemption, a category of text for which we have adopted a rule of narrow construction. See, e. g., United States v. Centennial Savings Bank FSB, 499 U.S. 573, 583-584 (1991).
It is true that the Secretary's current regulation, at least as it has been applied by the IRS, see n. 1, supra, contradicts the interpretation of the statute I have set forth above. But while agencies are bound by those regulations that are issued within the scope of their lawful discretion (at least until the regulations are modified or rescinded through appropriate
Finally (and relatedly), I must acknowledge that the basis for reversing the Court of Appeals on which I rely has not been argued by the United States, here or below. The rule that points not argued will not be considered is more than just a prudential rule of convenience; its observance, at least in the vast majority of cases, distinguishes our adversary system of justice from the inquisitorial one. See United States v. Pryce, 291 U. S. App. D. C. 84, 96, 938 F.2d 1343, 1355 (1991) (Silberman, J., dissenting in part). Even so, there must be enough play in the joints that the Supreme Court need not render judgment on the basis of a rule of law whose nonexistence is apparent on the face of things, simply because the parties agree upon it—particularly when the judgment will reinforce error already prevalent in the system. See, e. g., Arcadia v. Ohio Power Co., 498 U.S. 73 (1990). I think that is the case here.
Respondents may not exclude their recovery from taxable income unless their action was one "based upon tort or tort type rights." 26 CFR § 1.104-1(c) (1991). On the reasonable assumption that the regulation reflects the broad dichotomy
The reasons do not go solely to that one side, however. While I do not join the majority in holding that the tort-like character of a claim should turn solely on whether the plaintiff can recover for "intangible elements of injury," ante, at 235, I agree that Title VII's limitation of recovery to lost wages ("back pay") counts against holding respondents' statutory action to be "tort type." Tort actions, it cannot be gainsaid, commonly (though not invariably
A further similarity between Title VII and contract law, at least in the context of an existing employment relationship, is the great resemblance of rights guaranteed by Title VII to those commonly arising under the terms and conditions
In sum, good reasons tug each way. It is needless to decide which tug harder, however, for the outcome in this case follows from the default rule of statutory interpretation that exclusions from income must be narrowly construed. See United States v. Centennial Savings Bank FSB, 499 U.S. 573, 583-584 (1991); Commissioner v. Jacobson, 336 U.S. 28, 49 (1949). That is, an accession to wealth is not to be held excluded from income unless some provision of the Internal Revenue Code clearly so entails. There being here no clear application of 26 U. S. C. § 104(a)(2) as interpreted by the Treasury regulation, I concur in the judgment.
Justice O'Connor, with whom Justice Thomas joins, dissenting.
The Court holds that respondents, unlike most plaintiffs who secure compensation after suffering personal injury, must pay tax on their recoveries for alleged discrimination because suits under Title VII of the Civil Rights Act of 1964, 78 Stat. 253, as amended, 42 Stat. § 2000e et seq., do not involve "tort type rights." This is so, the Court says, because
Section 104(a)(2) allows taxpayers to exclude from gross income "damages received . . . on account of personal injuries or sickness." The Court properly defers to an Internal Revenue Service (IRS) regulation that reasonably interprets the words "damages received" to mean "an amount received . . . through prosecution of a legal suit or action based upon tort or tort type rights, or through a settlement agreement entered into in lieu of such prosecution." 26 CFR § 1.104-1(c) (1991). See ante, at 234; United States v. Correll, 389 U.S. 299 (1967). Therefore, respondents may exclude from gross income any amount they received as a result of asserting a "tort type" right to recover for personal injury.
The Court appears to accept that discrimination in the workplace causes personal injury cognizable for purposes of § 104(a)(2), see ante, at 239, and there can be little doubt about this point. See Goodman v. Lukens Steel Co., 482 U.S. 656, 661 (1987) ("[R]acial discrimination . . . is a fundamental injury to the individual rights of a person"); Price Waterhouse v. Hopkins, 490 U.S. 228, 265 (1989) (O'Connor, J., concurring in judgment) ("[W]hatever the final outcome of a decisional process, the inclusion of race or sex as a consideration within it harms both society and the individual"). I disagree only with the Court's further holding that respondents' action did not assert tort-like rights because Congress limited the remedies available to Title VII plaintiffs. Focusing on remedies, it seems to me, misapprehends the
Title VII makes employment discrimination actionable without regard to contractual arrangements between employer and employee. Functionally, the law operates in the traditional manner of torts: Courts award compensation for invasions of a right to be free from certain injury in the workplace. Like damages in tort suits, moreover, monetary relief for violations of Title VII serves a public purpose beyond offsetting specific losses. "It is the reasonably certain prospect of a backpay award that `provide[s] the spur or catalyst which causes employers and unions to self-examine and to self-evaluate their employment practices and to endeavor to eliminate, so far as possible, the last vestiges of [discrimination].' " Albemarle Paper Co. v. Moody, 422 U.S. 405, 417-418 (1975) (quoting United States v. N. L. Industries, Inc., 479 F.2d 354, 379 (CA8 1973)).
Such a scheme fundamentally differs from contract liability, which "is imposed by the law for the protection of a single, limited interest, that of having the promises of others performed." W. Prosser, Law of Torts 5 (4th ed. 1971). Title VII liability also is distinguishable from quasicontractual liability, which "is created for the prevention of unjust enrichment of one man at the expense of another, and the restitution of benefits which in good conscience belong to the plaintiff." Ibid. It is irrelevant for purposes of Title VII that an employer profits from discriminatory practices; the purpose of liability is not to reassign economic benefits to their rightful owner, but to compensate employees for injury they suffer and to "eradicat[e] discrimination throughout the economy." Albemarle Paper, supra, at 421.
This Court has found statutory causes of action for discrimination analogous to tort suits on prior occasions, but
When asked in Goodman v. Lukens Steel Co., supra, to determine the appropriate state analogue to a suit under 42 U. S. C. § 1981, the Court again considered the rights protected by federal law rather than the recovery that could be had by a plaintiff. As in Wilson, the tort-like nature of a § 1981 claim was clear. See 482 U. S., at 661. Accordingly, the Court quickly turned to rejecting the view that § 1981 suits are more similar to tort actions for interference with
Wilson and Goodman held federal civil rights suits analogous to personal injury tort actions not at all because of the damages available to civil rights plaintiffs, but because federal law protected individuals against tort-like personal injuries. Discrimination in the workplace being no less injurious than discrimination elsewhere, the rights asserted by persons who sue under Title VII are just as tort-like as the rights asserted by plaintiffs in actions brought under §§ 1981 and 1983.
The Court offers three additional reasons why respondents' recoveries should be taxed. First, it notes that amounts awarded under Title VII would have been received as taxable wages if there had been no discrimination, leaving the impression that failing to tax these recoveries would give victims of employment discrimination a windfall. See ante, at 241, and n. 13. Affording victims of employment discrimination this benefit, however, simply puts them on an equal footing with others who suffer personal injury. For example, "[i]f a taxpayer receives a damage award for a physical injury, which almost by definition is personal, the entire award is excluded from income even if all or a part of the recovery is determined with reference to the income lost because of the injury." Threlkeld v. Commissioner, 87 T.C. 1294, 1300 (1986), aff'd, 848 F.2d 81 (CA6 1988). I see no
Second, the Court intimates that the unavailability of jury trials to Title VII plaintiffs bears on determining the nature of the claim they bring. See ante, at 240, 241, n. 12. Here, the Court apparently assumes the answer to a question we have expressly declined to address on recent occasions. See Lytle v. Household Mfg., Inc., 494 U.S. 545, 549, n. 1 (1990) ("This Court has not ruled on the question whether a plaintiff seeking relief under Title VII has a right to a jury trial. . . . [W]e express no opinion on that issue here"); Teamsters v. Terry, 494 U.S. 558, 572 (1990). More importantly, the Court does not explain what relevance the availability of jury trials holds for the question of excludability under § 104(a)(2). The suggestion is that Title VII recoveries are not excludable under this section because employment discrimination suits are equitable rather than legal in nature. Cf. Sparrow v. Commissioner, 292 U. S. App. D. C. 259, 949 F.2d 434 (1991). That argument, however, ignores the very IRS regulation the Court purports to apply. Instead of construing the statutory term "damages" as a reference to the remedy traditionally available in actions at law, the IRS defines "damages" to mean "an amount" recovered through prosecution or settlement of a "legal suit or action based upon tort or tort type rights." 26 CFR § 1.104-1(c) (1991) (emphasis added). This inclusive definition renders the historical incidents of "actions at law" and "suits in equity" irrelevant to the proper interpretation of § 104(a)(2).
Finally, the Court asserts that Congress fundamentally changed the nature of a Title VII suit when it enacted the Civil Rights Act of 1991, Pub. L. 102-166, 105 Stat. 1071. By authorizing compensatory and punitive damages in addition to backpay and injunctive relief, the Court suggests, Congress extended the statute's scope beyond purely economic losses to personal injury. See ante, at 241, n. 12. This theory is odd on its face, for even before the 1991
Given the historic reach of Title VII, Congress' decision to authorize comparably broad remedies most naturally suggests that legislators thought existing penalties insufficient to effectuate the law's settled purposes. There is no need to guess whether Congress had a new conception of injury in mind, however. The Legislature set out the reason for new remedies in the statute itself, explaining that "additional remedies under Federal law are needed to deter unlawful harassment and intentional discrimination in the workplace." Pub. L. 102-166, § 2, 105 Stat. 1071. This authoritative evidence that Congress added new penalties principally to effectuate an established goal of Title VII, not contrary speculation, should guide our decision.
By resting on the remedies available under Title VII and distinguishing the recently amended version of that law, the Court does make today's decision a narrow one. Nevertheless, I remain of the view that Title VII offers a tort-like cause of action to those who suffer the injury of employment discrimination. See Price Waterhouse v. Hopkins, 490 U. S., at 264-265 (O'Connor, J., concurring in judgment). For this reason, I respectfully dissent.
Raymond C. Fay , Alan M. Serwer, and Thomas F. Joyce filed a brief for the United Airlines Pilot Group as amicus curiae.
Congress' 1989 amendment to § 104(a)(2) provides further support for the notion that "personal injuries" includes physical as well as nonphysical injuries. Congress rejected a bill that would have limited the § 104(a)(2) exclusion to cases involving "physical injury or physical sickness." See H. R. Rep. No. 101-247, pp. 1354-1355 (1989) (describing proposed § 11641 of H. R. 3299, 101st Cong., 1st Sess. (1989)). At the same time, Congress amended § 104(a) to allow the exclusion of punitive damages only in cases involving "physical injury or physical sickness." Pub. L. 101-239, § 7641(a), 103 Stat. 2379, 26 U. S. C. § 104(a) (1988 ed., Supp. I). The enactment of this limited amendment addressing only punitive damages shows that Congress assumed that other damages (i. e., compensatory) would be excluded in cases of both physical and nonphysical injury.
Notwithstanding Justice Scalia's contention in his separate opinion that the term "personal injuries" must be read as limited to "health"related injuries, see post, at 244, the foregoing authorities establish that § 104(a)(2) in fact encompasses a broad range of physical and nonphysical injuries to personal interests. Justice Scalia implicitly acknowledges that the plain meaning of the statutory phrase can support this wellestablished view. See post, at 243-244.