Those who receive damages from physical injuries or sickness are not required to pay tax on the damage award or settlement. That is the general rule. But what about ancillary claims by others? What about a lawsuit for physical damage that also includes a claim for the injured parties spouse? What if the taxpayer-husband was injured and the… Continue reading Tax on Damages for Loss of Consortium
Category: Lawsuit Awards
About Taxes on Lawsuits & Settlement Awards.
There can be significant tax liabilities that come with lawsuit and settlement awards. The nature of the suit dictates the tax consequences. The deductibility of attorneys fees is often at issue. And in some cases, there may be no tax due. This is often due to the exclusion for physical injury and sickness. We help clients navigate these tricky rules.
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Tax on Payment for Being Born With Medical Condition
We can do some amazing things given the state of our science and technology. These advances lead to some interesting tax questions. The IRS recently addressed such a question in PLR 201950004. It considers whether damages paid by a fertility clinic for failing to perform a genetic test are excluded from the recipient’s income as… Continue reading Tax on Payment for Being Born With Medical Condition
Settlement Award for Discrimination Related to Physical Injuries is Taxable
Damage awards received on account of personal physical injuries or physical sickness are not taxable. If a taxpayer receives a non-taxable award under this rule and then is discriminated against by his employer due to the physical injuries, is a second award paid by the employer also non-taxable? The court recently addressed this in Rajcoomar… Continue reading Settlement Award for Discrimination Related to Physical Injuries is Taxable
Is a Lawsuit Award Payment Taxable?
If you receive payments from a lawsuit settlement award, are the payments excluded from Federal income tax? What if the payments are for claims of emotional distress or physical sickness? The Tishkoff v. Commissioner, T.C. Summary Opinion 2016-65, case provides an opportunity to consider these rules. Facts & Procedural History The taxpayer worked for Wells Fargo… Continue reading Is a Lawsuit Award Payment Taxable?
Evidence for Excluding Settlement Award from Income
Settlement payments paid to compensate a taxpayer for his physical sickness or injury are not taxable. Can you prove physical sickness or injury by showing that the payments were not for an economic harm? The court addressed this in George v. Commissioner, T.C. Memo. 2016-156. Facts & Procedural History The taxpayer was a car salesman in… Continue reading Evidence for Excluding Settlement Award from Income
Qui Tam Settlements and the Tax Benefit Rule
What Is A Qui Tam ? A qui tam claim involves a lawsuit where a private citizen helps the government prosecute fraud perpetrated against the government. These claims are often filed by employees or former employees who know of wrongdoing by an employer. These are often whistleblower claims. In exchange for helping to prosecute the… Continue reading Qui Tam Settlements and the Tax Benefit Rule
Compensatory Damages May Not be Taxable: Let the Tax Refunds Begin
This is one of those fascinating cases. Despite the long line of case law, the US Court of Appeals for the District Circuit, in Murphy v. Internal Revenue Service, has held that Section 104(a)(2) is unconstitutional. Facts & Procedural In Muphy’s Case Murphy was awarded compensatory damages for emotional distress and loss of reputation. Murphy… Continue reading Compensatory Damages May Not be Taxable: Let the Tax Refunds Begin
Tax on Military Benefits for Disabled Soldiers
Few would argue that soldiers and military personnel, especially veterans, should be afforded certain privileges. In American society as of late these benefits have included free or reduced cost education, health benefits, and in some cases, retirement benefits. Yet, the courts, and ultimately Congress, have been less giving with regard to the tax treatment of… Continue reading Tax on Military Benefits for Disabled Soldiers
Tax Treatment of Settlement Agreements (Again)
The classification of settlement payments for purposes of federal income taxes continues to be a problem for taxpayers and for their legal advisers. The Ninth Circuit, in Rivera v. Baker West, Inc., recently upheld a lower court’s determination that an employer correctly withheld federal taxes from a settlement agreement paid to a former employee. FACTS… Continue reading Tax Treatment of Settlement Agreements (Again)
Taxation of Settlement Agreements for Plaintiffs Attorneys
Settlement awards can be structured in a number of different ways. This presents a number of tax planning opportunities. But for the typical settlement award, the tax consequences are somewhat standard. Including the Settlement in Income One of the tax issues for settlement awards is whether the award can be excluded from the clients income. … Continue reading Taxation of Settlement Agreements for Plaintiffs Attorneys