Ed Zollars, CPA <ezollar[at]mindspring.com> wrote:

- quote -

Actually, isn't it more important what the CLAIM said than
what the SETTLEMENT said?

MTW

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Gene E. Utterback, EA wrote:

- quote -

Actually, the problem is generally the opposite. The
settlement doesn't need to admit guilt--the question,
rather, is what claims is it meant to settle. And while no
guilt will be admitted, generally settlements cover any and
all potential claims related to the situation--and,
generally, some of those potential claims are *NOT*
excludable under Section 104.

I can't recall the case name right now, but there was a
Court of Appeals AT&T age discrimination ruling a while back
that held that if the settlement lists both excludable and
includable causes of action, the taxpayer cannot "pick and
choose" the excludable causes to come under Section 104
(this was prior to the "tightening up" of 104, but the logic
would still apply).

--
Ed Zollars, CPA
Phoenix, Arizona

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"John Baum" <baumgrenze[at]yahoo.com> wrote:
- quote -

It doesn't happen too often, but occasionally, such as in
this case, it seems that we can apply some basic logic to
get to the right answer. Have you ever, ever heard of a
voluntary settlement that included ANY admission of guilt?
(I have not!). If no guilt is admitted how can any part of
the VOLUNTARY settlement payment be allocated to the
punishment of those that admitted doing nothing wrong?

Thus, I would expect a voluntary settlement resulting from a
claim for wrongful death (I believe) should be considered
compensatory and should be treated as nontaxable.

Gene E. Utterback, EA

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John Baum wrote:
- quote -

I didn't think a settlement would have punitive damages;
wouldn't that consititute an admission of guilt?

(I know, this is a legal question, rather than a
tax question....)

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baumgrenze[at]yahoo.com (John Baum) wrote:

- quote -

Here's what an IRS rep said on the phone. "Depends."

Compensatory damages are not taxable when awarded by the court.

Punitive damages are taxable.

The IRS considers an out of court settlement to be the
equivalent of an award.

The attorney who filed the claim should report the nature of
the settlement payment, whether it is all compensatory or
part of each.

John

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If a firm settles out of court when they are sued for being
responsible for contributing to the death of an individual,
in this case mesothelioma caused by asbestos exposure, is
the net settlement considered taxable income to the estate
of the deceased? Is there any difference if there is income
resulting from damages awarded by a court?

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