Lawsuit Awards and Settlements: IRS Tax Law

Weitz & Luxenberg wants to ensure our clients have all the information they need to understand how to report their large settlements and lawsuit verdicts to the IRS.

This information from the Internal Revenue Service does not consitute legal advice.

We provide this document for informational purposes only. If you need help with your taxes, contact a tax attorney or an accountant.

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Table of Contents

• Introduction

• Chapter 1, Issues
  • Issues for Lawsuit Proceeds Received Prior to August 21, 1996
  • Issues for Lawsuit Proceeds Received After August 20, 1996

• Chapter 2, Taxability of Lawsuit Payments
  • Terminology/Definitions
    • Types of Claims
    • Types of Damages/Awards
    • Types of Settlements
    • Tax Treatment of Awards and Settlements

• Chapter 3, Other Related Topics
  • Payroll and Self-Employment Tax Considerations
  • Amount to be Included in Income
  • Deduction for Attorneys
  • Legal Fees Relating to Non-Taxable Awards or Settlements
  • Accrued Interest on Court Judgments

• Chapter 4, Sources of Information
  • Newspaper Articles
  • Courthouse Research
  • Computerized Data
  • Settlement Payors
  • State Department of Insurance
  • State Supreme Court Library

• Chapter 5, Third Party Contacts and Summons Information
  • Third Party Letter
  • Issuance of Summons
  • "John Doe" Summons
  • Third Party Summonses
  • Other Considerations
  • Attorney-Client Privilege
  • References

• Chapter 6, Building the Case File
  • Identifying the Taxpayer
  • Information Necessary for the Examination Case File

• Chapter 7, Examination Considerations
  • Scope of Examination
  • Examination Action Plan

• Chapter 8, Penalties

• Chapter 9, Form 1099-MISC - Reporting Requirements
  • Reporting of Damage Awards on Forms 1099-MISC
  • Reporting Payments to Attorneys on Form 1099-MISC

• Chapter 10, Quick Cite and Brief Synopsis Of Litigated Cases
  • Wrongful Death
  • Age Discrimination
  • Sex Discrimination
  • Discrimination Cases Prior to Burke and Schleier
  • Employment Related
  • Legal Fees
  • Insurance Company Cases
  • Miscellaneous

• Appendix
  • Appendix A, Sample Lawsuit Information Data Sheet
  • Appendix B, Sample Attachment to Letter
  • Appendix C, Information Document Request
  • Appendix D, Excerpts from Legislative History of 1996 Amendment

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see also:

Ch.1: Issues IRS Tax Law: Lawsuit Awards and Settlements, how to report your compensation
IRS- Help with your large settlements and lawsuit verdicts - Chapter 1

Ch.2: Taxability IRS Tax Law: How to report lawsuit awards and settlements
IRS Taxability- Tax help for your large settlements & lawsuit verdicts

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