¹Through November 2003; see the NASD website, at www.nasdadr.com/statistics.asp. Various publications have also documented a surge in lawsuits and arbitration cases by investors over this time; see Morgenson, An Iceberg of Irate Investors, The New York Times (2/9/03), Section 3, p. 1; Fledman, Sue Your Broker, 30 Money 10 (October 2001), p. 102; McCafferty, Now Everyones a Target,
18 CFO Magazine 8 (August 2002), p. 20.

²Statistics on the frequency of each of these types of disputes in NASD arbitration cases are provided at www.nasdadr.com/statistics.asp.

³Id.

⁴The origin-of-the-claim test has its origins in Walter Hort, 313 US 28 (1941), and is also articulated in Don Gilmore, 372 US 39 (1963).

⁵See, e.g., Swastika Oil & Gas Co., 123 F2d 382 (6th Cir. 1941).

⁶See, e.g., Raytheon Production Corp., 144 F2d 110 (1st Cir. 1944).

⁷See, e.g., M. Bennett Marcus, TC Memo 1996-190 (lost inheritance); Arthur Donn Vincent, TC Memo 1992-21 (lost gift).

⁸However, after the Jobs and Growth Tax Relief Reconciliation Act of 2003, most dividends are taxed at a rate equal to or less than capital gains; see Hegt, JGTRRA Cuts Rates, Increases Some Deductions and Credits, 34 The Tax Adviser 542 (September 2003).

⁹Western Products Co., 28 TC 1196 (1957).

¹⁰Margey K. Megargel, 3 TC 238 (1944).

¹¹Louis Boehm, 146 F2d 553 (2d Cir. 1945), affd, 326 US 287 (1945).

¹²Raytheon Production Corp., note 6 supra.

¹³Rev. Rul. 74-251, 1974-1 CB 234.

¹⁴Kevin M. OGilve, 519 US 79 (1996), and the Small Business Jobs Protection Act of 1996 amendments to Sec. 104 make it clear that punitive damages are taxable to the recipient, even if they are received on account of personal physical injuries or physical sickness.

¹⁵Punitive damages are excludible under Sec. 104(c), if awarded under a state wrongful-death statute and such damages are the only remedy available under the statute.

¹⁶The Conference Committee Report for the Sec. 104 amendment contains a footnote stating that emotional distress claims are not excludible under Sec. 104(a)(2), even if the emotional distress leads to physical symptoms (e.g., insomnia, headaches, stomach disorders); see amended H Rept No. 104-736, 104th Cong. 2d Sess. (1996), p. 1589.

¹⁷Brokerage customers sign agreements that prevent them from suing their brokers in court. The majority of these agreements require investors to use the NASD dispute resolution office to arbitrate their dispute.

¹⁸Hughes A. Bagley, 105 TC 396 (1995), affd, 121 F3d 393 (8th Cir. 1996); Bill E. McKay, 102 TC 465 (1994).

¹⁹James E. Threlkeld, 87 TC 1294 (1986), affd, 848 F2d 81 (6th Cir. 1988); Laszio Fono, 79 TC 680 (1982), affd, 749 F2d 37 (9th Cir. 1984).

²⁰See Edward E. Robinson, 102 TC 116 (1994), affd, 70 F3d 34 (5th Cir. 1995), cert. den.

²¹See Nathan Agar, 290 F2d 283 (2d Cir. 1961), and Eleanor Stocks, 98 TC 1 (1992).

²²Rev. Rul. 85-98, 1985-2 CB 51.

²³Romoner J. Strong, Jr., 79 F3d 1154 (9th Cir. 1996).

²⁴See Dreyfus Will Pay $20.5 Million to Settle Lawsuit, The New York Times (6/22/01), Section C, p. 4.

²⁵For a copy of the original complaint, contact the authors at hansonr@uncw.edu.

²⁶In IRS Letter Ruling 9234016 (5/22/92), embezzled funds restored to the taxpayers IRA were not taxable income, but part of the IRAs assets.

²⁷Sec. 1211(b)(1) limits the deduction of capital losses to $3,000 after they have been netted against capital gains.

²⁸The $100 limit under Sec. 165(h)(1) and the 10%-of-adjusted-gross-income limit under Sec. 165(h)(2) only apply to personal-use property; any transaction entered into for profit (e.g., an investment) is exempt under Sec. 165(h)(3)(B) and, thus, is fully deductible against other income.

²⁹See Rev. Rul. 72-112, 1972-1 CB 60.

³⁰John Hartwick, TC Memo 1988-424.

³¹See, e.g., Lombard Bros. Inc., 893 F2d 520 (2d Cir. 1990).

³²See, e.g., IRS Letter Ruling (CCA) 200305028 (1/13/03).

³³See, e.g., Ronald De Fusco, TC Memo 1979-230; Herbert Barry, TC Memo 1978-215; and Lester Paine, 63 TC 736 (1975), affd, 523 F2d 1053 (5th Cir. 1975).

³⁴Drew Jensen, TC Memo 1979-379; First National Bank of Palm Beach, DC FL, 6/22/76.