For better or for worse, the taxman is always on the lookout for previously harvested collection points. Personal injury and death suits have not at all been spared the debate of taxation. However, starting in 1918, IRS Federal Code 104(a)(2) was enacted to clear most questions on the subject.
Code 104(a)(2) specifically and intentionally set apart personal injury monies from gross income. The reasoning here was that lawsuit monies are not actually income, but fair and just compensation for injury caused by another. This is true, but there have come to be a few exceptions to the rule.
For example, an Atlanta injury lawyer wins a case for his client to the tune of $100,000 for bodily injury, $100,000 for psychological injury, and $100,000 for his client’s lost wages. The bodily injury money is not taxable under code 104(a)(2). Wages lost also automatically fall in the IRS collectible category of “wages.”
Enter Dennis Rodman. What does the always colorful NBA star have to do with taxable damages? In 1997, while playing in an NBA game, Rodman accidentally went out-of-bounds, but then found time to allegedly kick a cameraman in the groin before returning to the court.
The cameraman brought suit and everything progressed as normal in such a situation. Before court, both sides’ attorneys negotiated a settlement with a confidentiality agreement. What differed here though was that the cameraman later ended up in court facing the IRS over the settlement monies. The issue was that the monies had not been claimed as wages at tax time and that the confidentiality monies were in fact, taxable. Amos V. Commissioner ensued and the precedent-setting case concluded that confidentiality monies must be individually identified at settlement and that they are taxable. As a result, that hypothetical Atlanta injury lawyer would today need to be a “taxable damage injury lawyer”, knowing the ins and outs of such taxation precedents, and how they affect case monies.
We are APC, your most trusted, premier group of Florida injury lawyers. For over 25 years, we have been representing clients and getting results in all areas of personal injury and death cases. And over those years, our clients have relied on us for not just great outcomes, but for our extensive knowledge of settlement taxation laws. We have also served as the proud representation in many notable cases, achieving millions in compensatory funds for our clients. If you or someone you know need help with any type of injury or damage related issue, please contact us at 1-800-909-5529.
Contact us today whether you need a Fort Lauderdale personal injury attorney, Florida wrongful death attorney, or a Florida products liability lawyer.