IRS Guidance on Structuring Attorneys Fees

It should not be a surprise to learn that attorneys often hire tax attorneys to help them minimize their taxes. One popular tax savings strategy for attorneys is to structure their contingent fees. A contingent fee is a payment arrangement in which a lawyer provides services on the condition that payment will only be made…

Tax on Payment for Being Born With Medical Condition

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…

Double Trouble: Taxability of Repeated Injury Lawsuits

Serial Irs Whistleblower Cannot Remain Anonymous

As human beings, we strive to understand the laws of nature and our place in the world. Despite the advancements in technology, research, and science, there still remains much that is unknown. However, we do observe patterns and repetitions in both the natural world and human behavior. With each passing experience and as we age,…

Is a Lawsuit Award Payment Taxable?

“one Of Its Principal Purposes” For An Installment Sale

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…

Evidence for Excluding Settlement Award from Income

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…

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…

Compensatory Damages May Not be Taxable: Let the Tax Refunds Begin

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…

Tax on Social Security Paid to Disabled Soldiers

Tax On Military Benefits For Disabled Soldiers

Soldiers and military personnel have long been recognized for their service and sacrifices to their country, and as a result, society has generally agreed that they should be given certain privileges. These privileges often include access to free or reduced-cost education, health benefits, and retirement benefits, among others. For example, the GI Bill provides education…

Tax Withholding on Settlement Awards

Tax Treatment Of Settlement Agreements (again)

There are quite a few court cases that address whether a lawsuit settlement award is taxable. Section 104 excludes some damage payments for income tax purposes. But what about withholding taxes? Assuming that the payment or award is taxable, can the award escape withholding tax? One might think that this turns on whether the award…