The United States Tax Court (Court) recently issued a decision highlighting, yet again, the importance of clear drafting in settlement agreements. In Doyle v. Comm’r of Internal Revenue, T.C. Memo. 2019-8, the Court held that the taxpayer could not exclude amounts, pursuant to Internal Revenue Code § 104(a)(2), that he received from a settlement agreement. [...]
The Minnesota Department of Revenue (MDR) generally has 3.5 years from the date a tax return was due to assess additional tax. If the MDR audits a taxpayer’s return and increases the tax liability, how much time does the taxpayer have to appeal and contest the additional assessment? Below are the general time frames within [...]
Settlements in legal disputes between employers and employees can vary significantly depending on whether the amounts to be received are taxable. For example, two parties in separate lawsuits can each agree to a settlement of $500,000. But, because one settlement is taxable and the other is not taxable, one party may receive $500,000 and the [...]
There is one important question to ask when evaluating whether settlement proceeds compensating for sexual abuse are subject to individual income tax: did a physical injury or sickness occur? If the answer to that question is yes, then there is a good chance at least of portion of those proceeds are excludible. In 1996, Congress [...]
This is the tenth in a series of articles on issues surrounding the Taxation of Settlements and Verdicts. The chart below summarizes the reporting obligations of the payor. Damage Award Payments to Current or Former Employee Payments Not Segregated from Wage Award to Employee Payments to Non-Employee * IRS Section 104 None None None Back [...]
This is the ninth in a series of articles on issues surrounding the Taxation of Settlements and Verdicts. The chart below summarizes the withholding and payment obligations of the defendant/ payor. Employee * Non Employee ** Damage Award Payments Combined with Wages but Segregated Payments Combined with Wages But Not Segregated Section […]
[...]This is the eighth in a series of articles on issues surrounding the Taxation of Settlements and Verdicts. The chart below summarizes the taxable nature of a variety of settlements and verdicts. Damage Award Taxable? Exceptions Relevant Case Law / Statute Physical Injury / Illness No Taxable if not recovered for a tort or tort [...]
This is the seventh in a series of articles on issues surrounding the Taxation of Settlements and Verdicts. This article addresses the question of whether the fact that attorney fees are provided for by a statute has any affect on including these fees in plaintiff’s gross income. United States Supreme Court. The Supreme Court in [...]
This is the sixth in a series of articles on issues surrounding the Taxation of Settlements and Verdicts. This article explains when and how the cost of attorneys fees may be deducted “below the line.” For cases not covered by IRC Section 62(a)(20) the United States Supreme Court determined, in Commissioner v. Banks, 125 S.Ct. [...]
This is the fifth in a series of articles on issues surrounding the Taxation of Settlements and Verdicts. This article presents situations when the the expense of attorneys fees may be deducted “above the line.” Deducting Attorney Fees “Above the Line.” The American Jobs Creation Act of 2004, Section 703, amended Internal Revenue Code, Section [...]