Stuart Bronstein wrote:
- quote -

However: Not 100% of every payment of this will be for PI.
Some part will be for compensation for the wrecked vehicle.
Make certain that ALL of the amount for the car was received
in prior years so that all that is left is the PI
adjustment....

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"Kirk Carpenter" <kirkc1[at]cox.net> wrote:

- quote -

IRS probably sent her a CP2000 underreporter notice
proposing an additional $7,000 tax assessment. The
taxpayer, or her representative, needs to respond in writing
to the notice and needs to do so within the requested 30-day
response timeframe. Explain that Internal Revenue Code
(IRC) § 104(a)(2) exempts the $52,000 settlement from her
income because it represents compensation for a personal,
physical injury. The response needs to include a copy of
the decision or settlement document that shows why she was
entitled to the payment.

If the tax examiners at the IRS campus accept the
explanation, they will respond in time that the explanation
is satisfactory and that her return is being accepted as
filed. If they decide to press on with the proposed
assessment, absent her agreement (also called a waiver) to
the proposed assessment, IRS must send her a Statutory
Notice of Deficiency (SNOD). A SNOD is a legal notice that
she has 90 days in which to petition the U.S. Tax Court for
the purpose of contesting the proposed assessment without
first having to pay the tax. There is a filing fee, I think
it's $60, that must be remitted with the petition to the Tax
Court. Once the case is docketed, the taxpayer or her
representative will have an opportunity to meet with an
Appeals Officer. Appeals Officers have the authority to
settle cases. If the facts are what you say they are and
should the case get this far, in my opinion most Appeals
Officers would agree to a stipulated decision to accept the
return as filed.

Barney Byrd

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Kirk Carpenter wrote:

- quote -

I'd send them a note telling them that the payout was for
personal injuries. Then I'd include a copy of the complaint
in the original lawsuit, the settlement agreement in that
suit, the complaint in the later suit and the settlement
agreement in that suit as well.

Stu

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Here's the situation...

Taxpayer's husband was in an auto accident in 1985 in which
he was killed and car was demolished. Driver of the other
vehicle was driving under the influence and had no
insurance. Taxpayer's auto policy paid for auto and death
of her husband from 'uninsured motorist' component.

A class action lawsuit was filed in the late 90s which
maintained that auto policy 'uninsured motorist' and
'underinsured motorist' components should be stacked and
payout limits should be the sum of the two coverages.
Insurance company settled and the taxpayer received an
amended insurance settlement of $52,000.00 (plus $300.00
interest) in 2002. Insurance settlement was deemed to be
based on the death of her husband so the 52,000.00 was not
included on 2002 tax return. Interest was claimed on the
return.

The insurance company reported the $52,000.00 payout on form
1099-MISC and the IRS has now sent her a written inquiry
assessing an additional $7,000.00 in taxes.

What would you do?

Kirk

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