Skip to comments.Lawsuit Winners Lose the Tax Battle
Posted on 01/26/2005 9:50:51 AM PST by det dweller too
Lawsuit Winners Lose the Tax Battle
· The Supreme Court rules unanimously that plaintiffs must pay levies on awards without first subtracting legal fees.
WASHINGTON The winners of big lawsuits may find themselves losers at tax time, thanks to a Supreme Court ruling Monday.
The justices, agreeing with the Internal Revenue Service, ruled that all the money plaintiffs won in lawsuits must be included in their gross incomes, even if a large portion of it went to lawyers.
(Excerpt) Read more at latimes.com ...
Are you in business?
injury can arise from personal physical harm done to one person by another, such as kicking a person and breaking his or her leg. It can cost the injured person money. Let's say, 10K of hospital expenses.
Another way to harm a person is to accuse him or her of inappropriate behavior which is untrue-- libel or slander. The person winds up losing a job and it costs the person money. Let's say, for example, $10K to move from one locale to a different locale to find another job.
In each case, the out-of-pocket expenses by the injured party is $10K.
Now the SC proposes charging tax on any court-ordered monetary award categorized as defamation/slander?
In the second case, the injured party effectively pays taxes on an *expense*. The award it seems to me should be regarded as *compensation* for *expenses*, not "income."
It sounds overall as if the SC suffers from the impression that the purpose of society is income redistribution-- otherwise why exempt discrimination? Would there be any real doubt that so-called "reverse discrimination" would be effectively removed from this exemption, given the demonstrated bias of the court in this decision?
Likewise, the implicit purpose of taxing defamation seems to be, effectively, to exempt state and companies from any consequences of unintentionally or intentionally harming a person's reputation.
Injury is injury. Compensation is compensation, or should be. This is income redistribution and corporate pandering in the form of yet another wacked-out SC decision.
Maybe I misunderstand some aspect or another of the nature and effects of this decision(?)
General rule: expenses incurred for the production of income are deductible, fines and penalties are not.
Simple answer is make the lawyers fees after taxes in the initial pre-litigation agreement.If this was not done bring action against lawyer for hiding facts in initial negotiations.
Where did it say the lawyer was to pay taxes on his fee? All I read was that the winner was to pay tax on the total amount.
Income is taxable unless specifically exempt.
Among the exemptions are damages paid for personal physical injuries & sickness. The treatment of deductions depends upon the associated income - business income, business deductions, vs personal income, personal deductions.
The essence of a defamation/slander suit presumably is to replace income lost by damage to one's reputation. If the income "lost" would have been taxable, why not its replacement? On the other hand, compensation for a lost body part (don't go there) is replacing one non-taxed asset (I mean it, don't go there) with another. It's all pretty logical, actually.
Many of the lowlife professional plaintiffs will end up with far, far less than the shysters promised them. Some will actually OWE huge amounts of money after their "win."
The only downside is that the shysters will walk away with at least as much if not more than the crooked plaintiffs. And there are still no 1099s to the iRS reporting the monies paid to the lawyers.
Don't want to drag anyone necessarily down another income tax rathole-- NST is the way to go and abolish the intrusive privacy invasion of the IRS altogether IMO.
Well, I can see how the IRS can twist it that way. If you won a lawsuit for a $ Million and $ 500K in legal fees, the IRS is saying you got $1.5 Mil and you in turn paid the lawyer $500K.
That is the theory, but the actual way it works is the lawyer gets the money, subtracts their fee and sends/gives the remainder to the plaintiff. Now how about if the ENTIRE amount was able to the lawyer, and then just the result sent to the plaintiff, which is all he ever sees anyway, is also taxable to him. Wow! that would be a shock.
Property loss (casualty or theft) is deductible to the extent not reimbursed. If reimbursement exceeds your "basis" in the property, then you have income (possibly capital gain.)