December 7, 2007
By Fernanda Santos, The New York Times
Seven months after his release from prison in 2001, after serving 15 years for a rape he did not commit, David Pope received $385,000 in compensation from the State of Texas and set out to rebuild his life: He rented an apartment, bought a car, helped his mother pay bills and traveled overseas for the first time.
The money did not last long, but being broke is not the only problem Mr. Pope, 46, has grappled with since his exoneration. He said the Internal Revenue Service has notified him that he owes $90,000 in federal taxes on the compensation he received for his wrongful conviction, but he has no idea how he is going to settle the debt.
“I didn’t know I had to pay taxes over it until the government started sending me letters,” said Mr. Pope, who has struggled to find a steady job.
Yesterday, a bill that would exempt exonerated prisoners from paying federal income taxes on compensation received for a wrongful conviction was introduced by Senator Charles E. Schumer of New York. The measure pushes the issue of taxation to the forefront of the debate over how to compensate the wrongly convicted properly for the years they spent behind bars.
“The criminal justice system is not perfect, so at the very least, we ought to do what we can to make amends to the people who were wrongly convicted — a very small number of people who pay a big, big price for those mistakes,” Mr. Schumer said. “The compensation they receive should not be taxed; that’s certainly like throwing salt on a very deep wound.”
The bill, called the Wrongful Convictions Tax Relief Act, would also exempt exonerated prisoners who do not have prior felony convictions from paying income taxes on up to $50,000 earned each year after their release from prison (or up to $75,000 if they file joint tax returns) and provide them with an income tax credit on payroll taxes paid over the same earnings.
More than 200 people nationwide have been exonerated by DNA evidence since 1989, and more than 400 have been cleared by other types of evidence.
To date, 22 states have passed legislation establishing parameters for financial compensation; three of them — California, Massachusetts and Vermont — have provisions exempting exonerated prisoners from paying state taxes on the money they receive.
But federal laws are unclear as to whether compensation for a wrongful conviction should be considered income and taxed, like punitive damages are, or if it should be treated as a personal-injury award, which is not subjected to taxes, an Internal Revenue Service spokesman said.
Some exonerated prisoners have successfully challenged the I.R.S. in court and were then cleared of paying taxes. Most, however, either pay or stay in delinquency, said Barry C. Scheck, a lawyer and co-founder of the Innocence Project, a legal clinic at Benjamin N. Cardozo School of Law in Manhattan.
The benefits proposed in the bill, co-sponsored by Senator Sam Brownback, Republican of Kansas, would stay in effect for the number of years an exonerated prisoner served time or for 15 years, whichever is less. The federal tax exemption over compensation awards would apply to people like Mr. Pope, who have already been released and have been told they owe taxes to the federal government.