Why settle for less? Factoring in taxability

Article Abstract:

Attorneys must investigate how damages and settlement awards are taxed early on in their litigation. The cause of action is the most important factor that determines taxability. Tort remedies are subject to tax exclusion under IRC 104(a)(2). The Tax Court tends to hold business as opposed to personal injuries taxable. Thus, plaintiff's counsel would want to prove that a claim is for a personal injury and defense counsel to keep the amount of damages down by claiming they are not taxable or that taxes are included in the award.

Laws, regulations and rules, Tax exemption, Tax exemptions

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Winning and losing: Supreme Court raises questions about taxability of personal injury awards

Article Abstract:

The US Supreme Court's June 14 decision in Commissioner v. Schleier makes less clear whether many lawsuit judgments or settlements are taxable. Section 104 of the Internal Revenue Code permits exclusion from tax returns of amounts received due to illness or personal injury. The Court acknowledged that discrimination can be an injury but implied that only physical injury is clearly covered under the regulation. The confusion this creates will doubtless prove expensive and lead to more cases before the Court.

Employment discrimination, Age discrimination

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Pouring salt in the wound; taxability of punitives in personal injury cases comes up for scrutiny

Article Abstract:

The issue of taxability of punitive damage awards in personal injury cases may be the reason the US Supreme Court has granted certiorari to O'Gilvie v. United States. The case is slated for argument early in the October term and will consider whether punitive damage awards qualify as taxable income. The IRS states that only compensatory damages are taxable, while plaintiffs' lawyers feel 26 U.S.C. 104(a)(2) applies to all recoveries from an injury. The federal appellate courts have differed on the issue.

Exemplary damages, Punitive damages

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