## Facts

- Rodell Johnson worked as a guard at a Colorado juvenile correctional facility and suffered a physical injury during a confrontation with a juvenile.
- Johnson experienced continuing physical problems, could not return to his prior job, and was terminated.
- Johnson sued the State of Colorado under the Americans with Disabilities Act (ADA) for failure to accommodate his impairment and for discharge, and he prevailed.
- The ADA verdict awarded: $103,300 back pay; $190,100 front pay; $50,000 emotional distress; $8,304 prejudgment interest; and $70,127 attorneys’ fees and costs.
- In 1999, Colorado paid the judgment and withheld federal income tax, including $75,694 applied to Johnson’s 1999 tax liability attributable to the back pay and front pay amounts.
- Johnson filed his 1999 return without including the back pay and front pay in gross income and sought a refund of $75,694, asserting exclusion under I.R.C. § 104(a)(2).
- The United States moved for summary judgment in the refund action.

## Issues

1. Whether amounts recovered in an ADA employment-discrimination judgment, including back pay, front pay, and emotional-distress damages, are excludable from gross income under I.R.C. § 104(a)(2) as damages received “on account of personal physical injuries or physical sickness.”
2. Whether the wage-replacement components of an ADA award are taxable under I.R.C. § 61 when the plaintiff’s disability originated in a prior physical injury.

## Decision

- The court granted the United States’ motion for summary judgment.
- The court held that the challenged portions of Johnson’s ADA recovery were includable in gross income and did not qualify for exclusion under § 104(a)(2).
- The court concluded Johnson was not entitled to the claimed refund for amounts withheld and applied to his 1999 income tax liability on the back pay and front pay recovery.

## Legal Principles

- Gross income under I.R.C. § 61 includes all income from whatever source derived; statutory exclusions are construed narrowly.
- Under I.R.C. § 104(a)(2), as amended in 1996, only damages received on account of “personal physical injuries or physical sickness” (excluding punitive damages) are excluded from gross income.
- Under Commissioner v. Schleier, § 104(a)(2) requires (1) a cause of action based on tort or tort-type rights and (2) damages received on account of personal injury or sickness; after 1996, the injury or sickness must be physical.
- For ADA discrimination recoveries, the tax characterization turns on the nature of the claim producing the award; the existence of a physical injury in the background does not make the discrimination damages excludable.
- Back pay and front pay awarded for discriminatory discharge function as wage-replacement and are generally taxable.
- Emotional-distress damages are not excluded under § 104(a)(2) unless attributable to physical injury or physical sickness; distress tied to employment discrimination remains taxable.
- Prejudgment interest is taxable as interest income regardless of the underlying claim.
- Attorneys’ fees and costs do not convert a taxable recovery into an excludable one under § 104(a)(2).

## Conclusion

Because Johnson’s recovery was awarded for ADA discrimination—failure to accommodate and wrongful discharge—rather than for the physical injury itself, the court held the wage and related components were not damages received “on account of personal physical injuries or physical sickness” and were taxable, defeating Johnson’s refund claim.


Johnson v. United States, 228 F. Supp. 2d 1218 (D. Colo. 2002)