dissenting:
Attempting to provide some coherence to this muddled area of the law, the majority offers the following principle: damages are excludable from gross income under § 104(a)(2) if they constitute a restoration of capital. Because punitive damages are designed to punish the tortfeasor, not compensate the injured party, the majority concludes punitive damages are taxable. Although I agree that the majority’s restoration of capital rule may make sense as a matter of policy, I don’t think the text of § 104(a)(2), its legislative history, or the case law can be squared with the majority’s interpretation.
A. Section 104(a)(2) provides that gross income does not include “the amount of any damages received ... on account of personal injuries or sickness.” (emphasis added). As the Tax Court observed, “any damages” suggests “all damages.” Miller v. Commissioner, 93 T.C. 330, 338, 1989 WL 104238 (1989), rev’d, 914 F.2d 586 (4th Cir.1990); see also Horton v. Commissioner, 100 T.C. 93, 95, 1993 WL 28557 (1993). If Congress intended to exclude only compensatory damages from gross income, it certainly could have made that distinction explicit. The language of § 104(a)(2) simply does not permit a distinction between compensatory and punitive damages.
The majority, joining the Fourth and Federal Circuits, asserts the provision is ambiguous. See Reese v. United States, 24 F.3d 228 (Fed.Cir.1994); Miller, 914 F.2d at 589-90. I disagree. The majority claims: ‘“Damages received on account of personal injury’ could mean all damages received in a personal injury lawsuit, or, it could mean only those damages which purport to compensate the taxpayer for such injuries.” But the majority passes over the fact that the word “any” precedes “damages.” I think the Tax Court’s conclusion that the language was unambiguous, permitting no distinction between compensatory and punitive damages, is a sound construction of the statute. See Horton, 100 T.C. at 95, 1993 WL 28557; Miller, 93 T.C. at 338, 1989 WL 104238.
The Tax Court decisions were nearly unanimous—Miller was a 15 to 2 decision and Horton was a 16 to 3 decision. Although we review the Tax Court’s conclusions of law de novo, we should proceed cautiously when reversing a position the Tax Court carefully considered and accepted by an overwhelming majority on two separate occasions. Similarly, the majority lightly glosses over our decision in Roemer v. Commissioner, 716 F.2d 693 (9th Cir.1983). In Roemer, we held punitive damages were excludable “where there has been a personal injury.” Id. at 700. Under Roemer, taxpayers clearly win this case. The majority contends Roemer no longer controls because the court relied upon a 1975 Revenue Ruling which has since been overruled. Presumably, however, the Roemer court independently reviewed the text of the statute and did not blindly follow the *1085Internal Revenue Service’s pronouncements on the subject. Furthermore, the Service’s flip-flop on the issue, compare Rev.Rul. 75-45, 1975-1 C.B. 47 (punitive damages not taxable) with Rev.Rul. 84-108, 1984-2 C.B. 32 (punitive damages taxable), undermines its claim that now it really knows what § 104(a)(2) means.
The majority believes § 104(a)(2) requires the taxpayer to prove both (1) the damages were recovered in a tort-like suit and (2) the damages were received on account of personal injury. The majority then concludes punitive damages are not received on account of personal injury because they do not compensate for personal injury, nor do they bear any relationship to actual injuries. Most jurisdictions, however, require some amount of actual damage before punitive damages are available. Miller, 93 T.C. at 339, 1989 WL 104238. I think it’s reasonable to conclude that punitive damages are received on account of personal injury because punitive damages are not available unless a personal iiyury has occurred. Therefore, even under the majority’s test, punitive damages in a personal injury lawsuit should be excludable under § 104(a)(2).
B. Instead of the majority’s two-part test, however, I would adopt the Tax Court’s approach:
The beginning and end of the inquiry should be whether the damages were paid on account of “personal injuries.” This inquiry is answered by determining the nature of the underlying claim. Once the nature of the underlying claim is established as one for personal injury, any damages received on account of that claim, including punitive damages, are excluda-ble.
Horton, 100 T.C. at 96, 1993 WL 28557.
Like the Tax Court, I believe the Supreme Court’s opinion in United States v. Burke, — U.S. -, 112 S.Ct. 1867, 119 L.Ed.2d 34 (1992), essentially adopted this method of analysis. The Sixth Circuit had held in Burke that
Threlkeld [v. Commissioner, 87 T.C. 1294, 1986 WL 22061 (1986), aff'd 848 F.2d 81 (6th Cir.1988) ] and its progeny require that for the purposes of § 104(a)(2), this court determine whether the injury is personal and the claim resulting in the damages is tort-like in nature. If the answer is in the affirmative, then that is “the beginning and end of the inquiry.” The damages resulting from such a claim are fully excludable under § 104(a)(2).
Burke v. United States, 929 F.2d 1119, 1123 (6th Cir.1991). Although the Supreme Court reversed the Sixth Circuit’s holding that Title VII claims were tort-like in nature, the Court expressly adopted the Sixth Circuit’s focus on the nature of the underlying claim: “We thus agree with the Court of Appeals’ analysis insofar as it focused, for purposes of § 104(a)(2), on the nature of the claim underlying ... [the taxpayers’] damages award.” Burke, — U.S. at -, 112 S.Ct. at 1872. The majority tries to finesse this reasoning by noting the Burke Court did not directly consider whether punitive damages were ex-cludable. But the import of the Court’s analysis is clear. The focus should be on the nature of the underlying claim. The Burke Court did not mention any additional requirements for exclusion under § 104(a)(2).1
There is also another way in which Burke supports the conclusion that punitive damages are excludable from gross income. The Court described the availability of punitive damages as one of the indicia of traditional tort liability. Id. The Court then relied upon the unavailability of punitive damages *1086in a Title VII case to hold that Title VII does not redress a tort-like personal injury. Id. at -, 112 S.Ct. at 1873. The Supreme Court stated that “the concept of a ‘tort’ is inextricably bound up with remedies,” including punitive damages. Id. at-, 112 S.Ct. at 1872 n. 7. Because punitive damages are one of the primary indicia of a personal injury claim, I believe it follows that punitive damages are received “on account of personal injury.” Horton, 100 T.C. at 99, 1993 WL 28557, To conclude otherwise, as the majority does, is to say that although the availability of punitive damages makes the claim tort-like, rendering the compensatory damages excludable under § 104(a)(2), the punitive damages themselves are unrelated to the personal injury and should be taxable. I am reluctant to reach such an illogical conclusion.
Because everyone agrees that the Haw-kinses’ bad-faith lawsuit against Allstate was a tort-type claim and that they suffered personal injury, I believe the punitive damages must be excludable.
C. The 1989 amendment to § 104 further supports my conclusion. The 1989 amendment provided that § 104(a)(2) “shall not apply to any punitive damages in connection with a case not involving physical injury or physical sickness.” Omnibus Budget Reconciliation Act of 1989, Pub.L. No. 101-239, § 7641, 103 Stat. 2106, 2379.2 Thus, if the Hawkinses recovered punitive damages for their bad-faith insurance claim after 1989, the punitive damages would be taxable because their personal injuries were not physical. The Hawkinses contend, quite reasonably, that the amendment suggests all punitive damages received before 1989 are not taxable. The majority rejects this argument. The majority believes that just because Congress in 1989 thought punitive damages were excluded from taxation by § 104(a)(2) doesn’t necessarily mean that Congress in 1918 intended § 104(a)(2) to encompass punitive damages.
I agree Congress’s interpretation in 1989 may not be dispositive, but it certainly is relevant. The majority’s inability to harmonize the original statute with the amended statute troubles me because the majority’s construction leads to peculiar results. I believe we must start with the premise that punitive damages received after 1989 in cases of physical injury or sickness will be excluda-ble from gross income. See Burke, — U.S. at -, 112 S.Ct. at 1871 n. 6 (“Congress amended § 104(a) to allow the exclusion of punitive damages only in cases involving ‘physical injury or physical sickness.’ ”).3 My position offers a consistent explanation of both the pre-1989 and post-1989 law. Before 1989, all punitive damages received in personal injury cases were excludable from gross income. After Congress’s narrowing of the exclusion in 1989, only punitive damages received in personal injury cases involving physical injury or sickness were excluda-ble.
By contrast, the majority is unable to offer a satisfactory explanation of the 1989 amendment. The majority suggests that all punitive damages, both before and after 1989, must be taxable. After all, punitive damages are just as much of a windfall in a physical injury case as a nonphysical injury case. In both cases, the punitive damage award does not compensate the injured party for any loss — rather it’s designed to punish or deter the tortfeasor. Unfortunately, this conclusion means that Congress’s 1989 amendment to § 104 had no effect because punitive damages were already taxable! Moreover, if *1087Congress wanted to clarify that all punitive damages were taxable, why did the amendment create a distinction between physical and nonphysical injury eases?
One way to avoid the- absurdity of construing the 1989 amendment as meaningless would be to argue that the amendment made punitive damages awarded in physical injury eases after 1989 not taxable when previously they were taxable. But then, instead of narrowing the § 104(a)(2) exclusion, one would have to conclude that Congress actually intended its 1989 amendment to broaden the § 104(a)(2) exclusion. I don’t think that interpretation is tenable. If Congress wanted to broaden the exclusion, it could simply have amended § 104 to read: Punitive damages in cases involving physical injury or sickness are excludable. But Congress didn’t do that.4
I understand this case does not involve a post-1989 punitive damages award. However, I think it’s important that we consider the effect of our analysis on subsequent cases, especially when all future cases will be decided under the amended statute. The rule the majority announces — damages representing a windfall are taxable — will undoubtedly be cited in support of the proposition that all punitive damages are taxable. This court will then have to chose between rendering the 1989 amendment meaningless or improperly construing the amendment as expanding the § 104 exclusion. My interpretation of § 104(a)(2) avoids that dilemma.
D. The majority tries to rationalize the § 104(a)(2) exclusion in terms of a return of capital theory. I wish it were that simple. The majority’s rationale makes a lot more sense than the scheme Congress has devised, but we’re bound by the statute and the case law.
The return of capital theory has been widely criticized as a means of explaining the § 104(a)(2) exclusion. See, e.g., Downey v. Commissioner, 97 T.C. 150, 159, 1991 WL 140900 (1991), supplemental opinion, 100 T.C. 634, 1993 WL 231740 (1993); Cochran, supra, at 1573; Henning, supra, at 796; Robert J. Henry, Torts and Taxes, Taxes and Torts: The Taxation of Personal Injury Recoveries, 23 Hous.L.Rev. 701, 725 (1986). For example, suppose the Hawkinses are injured in an automobile accident and, as a result, can’t work for two weeks. If they receive compensatory damages equal to two weeks’ lost earnings, the damages would clearly be excludable under § 104(a)(2). But haven’t they been made more than whole? After all, if they had worked during those two weeks, they would have been required to pay taxes on their wages. But because of the injury, they received more money than if they had worked. Thus, compensatory damages, like punitive damages, can represent a windfall in addition to a return of capital. Furthermore, it’s impossible to explain, based on the return of capital theory, why punitive damages in physical injury cases after 1989 are not taxable.
The return of capital theory is closely related to the concept of basis in tax law. If I buy a property for $100 and sell it for $150, my $50 gain is taxable. My $100 basis, or return of capital, is not. See 26 U.S.C. §§ 1001, 1011-1012. But what is a person’s basis in his or her own body? Should we keep track of how much money is spent on improving the human body to calculate each person’s basis? Obviously, this would be impractical, but how else can we separate return of capital from windfall? See generally J. Martin Burke & Michael K. Friel, Tax Treatment of Employment-Related Personal Injury Awards: The Need for Limits, 50 Mont.L.Rev. 13, 42 (1989).
The majority tries to impose some logic and commonsense on § 104(a)(2). Despite their efforts, I fear they might sow more confusion than clarification. Congress should straighten out this mess, but until they do, we must do our best to apply the statute as it is written and as we believe Congress intended. We cannot contradict *1088the statute’s plain language in an effort to impose order in the sometimes-chaotie world of the tax code.
. The decision in O'Gilvie v. United States, 92-2 USTC ¶ 50,567, 1992 WL 223847 (D.Kan.1992), construed Burke in a similar vein. In O’Gilvie, the district court originally held punitive damages in a wrongful death suit were not excluda-ble from gross income, relying on the Fourth Circuit’s decision in Miller, However, the district court reversed its decision upon reconsideration after Burke. The court stated:
In our previous order, this court focused on the nature of the punitive damage award itself, rather than the nature of the underlying claim. In light of Burke, we believe our focus was misplaced. The Supreme Court's opinion makes clear that the proper inquiry for purposes of § 104(a)(2) is on the nature of the claim underlying the taxpayers' damages award.
Id. at 85. 974-75. 1992 WL 223847.
. The 1989 amendment only applies to "amounts received after July 10, 1989, in taxable years ending after such date,” unless the amounts were received “under any written binding agreement, court decree, or mediation award in effect on (or issued on or before) July 10, 1989.” Id. Here, the Hawkinses’ apparently received payment during 1988, thus, the 1989 amendment does not literally apply. Nevertheless, any construction of § 104(a)(2) should take into account Congress’s latest interpretation and modification of the statutory scheme.
. Commentators overwhelmingly agree with this interpretation of the 1989 amendment. See Arthur W. Andrews, The Taxation of Title VII Victims After the Civil Rights Act of 1991, 46 Tax Law. 755, 766 (1993); Mark Wright Cochran, 1989 Tax Act Compounds Confusion over Tax Status of Personal Injury Damages, 49 Tax Notes 1565, 1567 (1990); Margaret Henning, Recent Developments in the Tax Treatment of Personal Injury and Punitive Damage Recoveries, 45 Tax Law. 783, 801 (1992); David G. Jaeger, Taxation of Punitive Damage Awards: The Continuing Controversy, 57 Tax Notes 109, 114 (1992).
. As one commentator observed:
To argue that unamended section 104 does not exclude any punitive damages would mean that the amendment has the effect of broadening the statute to cover punitive damages received for physical injury. If this had been Congress’ intent, the amendment would likely have been drafted in a positive manner and stated that punitive damages received for physical injury are excludable from income. The legislative history behind the amendment clearly shows that the intent was to limit the scope of the language found in section 104.
Jaeger, supra, at 114.