I recently wrote this paper on Section 18.091(a) of the Texas Civil Practice and Remedies Code because defense attorneys kept trying to force plaintiffs to bring an accountant to trial to testify regarding how much their lost wages would be after taxes. It has been a long standing principle that those injured by another party’s negligence should be fully compensated. In recent years, tort feasors have tried to limit their responsibility for their negligent actions. One attempt was to enact Section 18.091(a). However, the defense bar’s interpretation of this section clearly conflicts with federal law.
In 2003, the Texas Legislature enacted Section 18.091(a) of the Texas Civil Practice and Remedies Code as part of sweeping tort reform. The statute reads as follows:
“Notwithstanding any other law, if any claimant seeks recovery for loss of earnings, loss of earning capacity, loss of contributions of a pecuniary value, or loss of inheritance, evidence to prove the loss must be presented in the form of a net loss after reduction for income tax payments or unpaid tax liability pursuant to any federal income tax law. Id. (emphasis added).”
Since the enactment of this section, defense attorneys have attempted to use this as a tool in their fight to lower the amount of damages that injured plaintiffs can recover. After a detailed look at the statute and the relevant federal law, it became apparent to me that this section does not apply to claims for personal injury or sickness. Since then, our firm has been able to convince members of the judiciary that section does not affect a plaintiff’s claim for personal injuries.
The reason Section 18.091(a) of the C.P.R.C. is inapplicable is quite simple. Both the IRS and the United States Supreme Court have excluded damages on account of physical injury or sickness from gross income. As are result, damages in a personal injury case can not be presented in a net tax form.
Specifically, Section 104(a)(2) of the Internal Revenue Code excludes from gross income the amount of any damages (other than punitive damages) received on account of personal physical injuries or physical sickness. The United States Supreme Court has confirmed that damages for lost wages and/or loss of future earnings as a result of personal physical injuries, such as a car wreck, are not included in gross income and not taxable. Commissioner v. Schleier, 515 U.S. 323, 329-330. Because the damages Plaintiff seeks in this case are on account of personal physical injuries they are not included in gross income and not subject to taxation. Therefore, Section 18.091(a) of the Texas Civil Practice and Remedies Code is inapplicable.
Full text of the article.