Stuart O. Bronstein wrote:
- quote -

Members of the class, except those who initially hired the
attorneys, did not contract for the services nor expected
the income - i.e. they did not overtly seek the income until
after class participation was opened. By that time, fees
are usually already determined (or at least, the attorney's
lien was already attached and has priority).

Class action suits are different from "regular claims" in
that not all claimants are known at the time of filing.

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"D. Stussy" <kd6lvw[at]bde-arc.ampr.org> wrote:
- quote -

Interesting. But what's the legal basis for making a
distinction with respect to class actions? Even in class
actions the attorneys fees are usually calculated as a part
of the entire sum collected before distribution to class
members.

Stu

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Stuart O. Bronstein wrote:
- quote -

Yes. Those were not CLASS ACTION suits.

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Michael T Wing CPA wrote:

- quote -

portion first; but durable medical equipment has a basis
equal to the portion allocated to the 7.5% in that year
for the purpose of sale or donation. I don't know.

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"D. Stussy" <kd6lvw[at]bde-arc.ampr.org> wrote:
- quote -

Not with respect to AMT, but I've seen court decisions (with
the recent exception of the 9th Circuit in contingent fee
cases) that disallow the deduction of attorneys fees in
other non-business situations. Do I have that wrong?

Stu

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"Michael T Wing CPA" <mtwingcpa[at]yahoo.com> wrote:
- quote -

At the very least the lawyers should obtain proper tax
advice themselves so that they can give the taxpayers enough
information for their own tax advisors to make a proper
determination.

Stu

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Arthur L. Rubin <ronnirubin[at]sprintmail.com> wrote:

- quote -

How do you know whether the settlement/reimbursement relates
to the deductible portion of your medical expenses vs. the
7.5% NON-deductible portion? <g
MTW

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William Brenner wrote:

- quote -

The one good thing about this mess is: For class action law
suits, the taxpayer is only responsible (at most) for the
NET after attorneys' fees. The IRS came out with a ruling
this year for CALS. So one doesn't have to worry about the
disallowed fees under AMT.

As far as the medical expense and recovery goes, the usual
rule of IRC 111 would apply. You are correct to be
concerned that there's income here if there were a prior
year deduction.

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William Brenner wrote:

- quote -

I've received one myself (actually, for my wife)....I'm
planning to declare it as taxable (miscellaneous), as
there there was certainly a medical deduction on
Schedule A in all relevent years.

If they don't tell you how much is interest, how is
your tax preparer supposed to know?

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William Brenner <wjbjr[at]webtv.net> wrote:

- quote -

I just love it when attorneys take on these cases, earning
~huge~ fees (I presume), but somehow have no opinion as to
the tax consequences. In my opinion, attorneys (or other
"promoters") in class action suits should be REQUIRED to
furnish a tax opinion, and that opinion should be more than
"we have no opinion." And/or obtain a letter ruling if the
IRS will oblige.

There is no way on this earth that I, as a "tax advisor,"
could have half a clue as to if or how settlements of this
type should be taxed. To refer recipients to "their tax
advisor" is simply a cop-out.

There ought to be a law! <g
P.S. My general approach is that if it doesn't smack of
taxable income on its face and no 1099 is received, I ignore
it.

MTW

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My dear wife and I received checks ($106.49 each) in
settlement of a class action suit involving alleged real or
imagined bad actions that resulted in the over pricing of
Synthroid, a prescription medication, by the manufacturer.

On the surface, this would appear to be a non-taxable price
reduction similar to the credit card rebates that were
discussed recently in this honourable forum. But there are
some factors that might make for a different answer.

The accompanying letter stated that the refunds included (an
unspecified amount of) interest that accrued to the total
settlement amount ($87.4 Million) while appeals and lawyer
fees were being settled. It also stated that recipients
should consult their tax advisor regarding any tax liability
(thus this post); and that none of the lawyers would offer
tax opinions. This leads one to believe that a 1099 will not be
forthcoming. It would appear that an unknown amount of interest would be
difficult to report if indeed there is a tax liability for it.

A more interesting question involves whether there is tax
liability for those recipients who claimed Schedule A
medical deductions that over the years included the cost of
this medication. What is their taxability status? And if
there is a tax liability attached to the payment, how can
they be expected to reconstruct probably discarded information from the
past twenty years covered by this event.

I raise these questions in part because the tax preparers
among you might have to deal with them. The class action
involved over 800,000 claimants, possibly including clients
of yours.

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