[Congressional Record Volume 144, Number 86 (Friday, June 26, 1998)]
[Extensions of Remarks]
[Pages E1262-E1263]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




         VIRGINIA BIRTH-RELATED INJURY COMPENSATION LEGISLATION

                                 ______
                                 

                            HON. TOM BLILEY

                              of virginia

                    in the house of representatives

                        Thursday, June 25, 1998

  Mr. BLILEY. Mr. Speaker, today I rise to introduce legislation which 
will ensure that payments Virginians receive under the Virginia Birth-
Related Injury Compensation Program continue to be received on a tax-
free basis.
  The Birth-Related Injury Compensation Program was enacted in Virginia 
in 1987. It provides rights and remedies to infants that sustain birth-
related neurological injuries. The program was designed to avert the 
insurance crisis that threatened the availability of obstetrical care 
by reducing the uncertainty inherent in the Tort system. The program 
removes cases involving certain serious birth-related injuries from the 
Tort system by providing a fund to compensate infants with such 
neurological injuries. If a qualifying injury has occurred and either 
the physician or hospital providing the obstetrical services 
participates in the program, compensation is available through the 
program without establishing fault. Qualifying injuries are generally 
brain or spinal cord injuries caused by the deprivation of oxygen or

[[Page E1263]]

mechanical injuries occurring during the course of labor, delivery or 
resuscitation in the immediate post-delivery period.
  The program provides the exclusive remedy for qualified claimants 
against participating physicians and/or participating hospitals, except 
in cases involving international or willful acts. Upon a determination 
that the infant qualifies for compensation through the program, damages 
may be awarded for certain actual medically necessary and reasonable 
expenses, loss of earnings from age 18 through 65, and reasonable 
expenses incurred in connection with the filing of the claim for 
compensation through the program. One form of compensation sometimes 
provided is the rent-free use of a residence that is specially equipped 
to accommodate the needs of the child. No punitive damages are awarded, 
and no compensation is awarded for pain and suffering, emotional 
distress or mental anguish.
  In 1994, at the request of one of the families receiving 
compensation, the program prepared and submitted a private letter 
ruling request to the IRS requesting a ruling that the rent-free use of 
a residence provided by the program could be excluded from taxable 
income by the infant and his family under section 104(a)(2) of the 
Internal Revenue Code. Section 104(a)(2) of the code provides ``gross 
income does not include the amount of damages (other than punitive 
damages) received (whether by suit or agreement and whether as lump 
sums or as periodic payments) on account of personal physical injuries 
or physical sickness . . .''. A favorable ruling was eventually 
obtained.
  Because a private letter ruling may only be relied upon by the 
taxpayer to whom it is issued, another Virginia family that 
subsequently applied for compensation requested that the program submit 
a private letter ruling request to its behalf as well. A ruling request 
was prepared and submitted; however, in this instance, the IRS was 
unwilling to issue a favorable ruling excluding the benefits under 
section 104(a)(2) of the Code. It was the IRS' position that section 
104(a)(2) only applied to damages received on account of traditional 
tort or tort-type rights. Because the Virginia Neurological Injury 
Compensation Act is a ``no fault'' statute and because the full range 
of traditional tort remedies (i.e., compensation for pain and 
suffering, emotional distress or mental anguish) is not available, the 
IRS took the position that the right to compensation through the 
program is not a traditional tort or tort-type right and, accordingly 
does not qualify for exclusion under section 104(a)(2).

  Fortunately, the IRS eventually issued a favorable ruling on the 
basis that the program is an arrangement having the effect of accident 
or health insurance and that the benefits received from the program are 
excludable by the infant under section 104(a)(3) of the Code. However, 
the ruling is limited to benefits received by the infant. The IRS 
specifically declined to issue a ruling regarding the taxation of 
benefits received by the infant's family. I believe that classifying 
the program as an insurance arrangement under section 104(a)(3) is an 
indirect and perhaps temporary way of addressing the problem.
  I believe the compensation received from the program is within the 
intent of exclusion under section 104(a)(2). Without the legislation I 
am introducing today, the IRS could make good on its threat to tax the 
benefits received under the program. Such action would have a 
disastrous effect on the families which receive benefits, as taxes 
would significantly diminish the relief provided by the program unless 
the program agreed to compensate the families for the additional tax 
incurred. The reimbursement of the taxes incurred on an after-tax basis 
would almost double the cost of the relief provided by the program.
  My legislation would ensure that Virginia families, who have already 
been visited by tragedy, could continue to receive benefits on a tax-
free basis. The legislation would amend section 104(a)(2) to exclude 
from gross income payments received under this program. It is the right 
thing to do, and I urge the House to consider this legislation this 
year.

                          ____________________