Tax Legal Services · Primary-source case analysis

O’Gilvie: Punitive Damages Were Not Excluded as Personal-Injury Compensation

By Aneeta Mishra and Timothy Chan

Published May 1, 2026 · Updated October 17, 2026

Decision: O’Gilvie v. United States, 519 U.S. 79 (1996).

O’Gilvie applies a causal and compensatory-function analysis to punitive damages arising from a personal-injury lawsuit.

The award included actual and punitive damages

After Betty O’Gilvie died of toxic shock syndrome, her husband and children received proceeds of a Kansas products-liability verdict awarding $1,525,000 in actual damages and $10 million in punitive damages. The husband sued for a refund of tax on the punitive proceeds; the government sued to recover refunds already paid to the children. These were consolidated disputes with different procedural positions. O’Gilvie, 519 U.S. at 81–82.

The lawsuit’s origin did not control every component

A physical injury and a tort lawsuit did not end the inquiry. The majority required a stronger causal connection than the argument that, without the injury and suit, there would have been no award. It distinguished damages compensating injury from amounts punishing the defendant’s conduct. O’Gilvie, 519 U.S. at 82–84.

Punitive damages served punishment and deterrence

Under the Kansas law discussed in the opinion, this punitive award was entirely noncompensatory. The Court therefore rejected its exclusion under the version of section 104(a)(2) at issue. That specific premise matters: Do not treat the word punitive as a substitute for identifying what the governing law and award actually provide. O’Gilvie, 519 U.S. at 83–89.

Disposition and current law

The Court affirmed the Tenth Circuit on December 10, 1996. It noted that the 1996 amendment excepting most punitive damages was prospective and did not govern this recovery. Separately, it held the government’s erroneous-refund suit timely by measuring from the children’s receipt of the checks, not their mailing. Preserve refund delivery records as well as the verdict and allocation. Present advice still requires the applicable statutory version and recovery date. O’Gilvie, 519 U.S. at 90–92.

Key takeaways

• Allocate settlement and judgment proceeds by function.
• Distinguish compensation from punishment.
• Do not extend an exclusion based only on the claim’s origin.
• Apply the version of section 104 in force for the relevant recovery.