Paul F. Roemer, Jr. And Marcia E. Roemer v. Commissioner of Internal Revenue

Paul F. Roemer Jr. (Roemer) and Marcia E. Roemer appeal a decision of the United States Tax Court upholding a determination of deficiencies for their 1975 taxable year. Marcia E. Roemer is a party solely because she signed a joint income tax return with her spouse.

We must decide whether the defamation of an individual constitutes a personal injury for purposes of I.R.C. § 104(a)(2) (personal injury damages excludable from gross income). As we disagree with the tax court’s treatment of the lump-sum award of damages in a defamation suit, we reverse. FACTS

Paul F. Roemer Jr. started his own insurance business in 1952 in Oakland, California, where he had lived all his life. In order to build clientele, Roemer became a member of numerous social, civic and professional organizations. By the mid-1960’s, he enjoyed an excellent personal and professional reputation in the community. His gross annual income had risen to approximately $300,000 (about one-half of which represented his net income).

In 1965, Roemer applied for an agency license from Penn Mutual Life Insurance Company (Penn Mutual). In the course of reviewing Roemer’s application, Penn Mutual requested a credit report from…