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Posted by William Brenner on April 30, 2008, 10:14 am
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The Florida legislature has passed with but one negative vote
-- not yet signed by the Governor -- a bill that would pay wrongfully
imprisoned persons $50,000 per year of imprisonment, with a maximum of
one million dollars.
http://www.miamiherald.com/news/florida/story/514849.html
The question is: Is this federal taxable income?
(Note: I have no personal interest in this matter other than curiosity.)
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Posted by Paul Thomas, CPA on April 30, 2008, 11:01 am
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> The Florida legislature has passed with but one negative
> vote -- not yet signed by the Governor -- a bill that would
> pay wrongfully imprisoned persons $50,000 per year of
> imprisonment, with a maximum of one million dollars.
>
> http://www.miamiherald.com/news/florida/story/514849.html
>
> The question is: Is this federal taxable income?
I see no reason that the feds would exempt this income.
Technically it's a moot point in Florida. But what if it's paid out in
installments, and you receive an installment while residing in another
state.
> (Note: I have no personal interest in this matter other than curiosity.)
Aww....inquiring minds want to know.......
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Paul A. Thomas, CPA
Athens, Georgia
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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
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<< to this newsgroup as well as our anti-spamming policy >>
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Posted by removeps-groups@yahoo.com on April 30, 2008, 11:36 am
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> The Florida legislature has passed with but one negative vote
> -- not yet signed by the Governor -- a bill that would pay wrongfully
> imprisoned persons $50,000 per year of imprisonment, with a maximum of
> one million dollars.
>
> http://www.miamiherald.com/news/florida/story/514849.html
Publication 525 (2007), Taxable and Nontaxable Income
http://www.irs.gov/publications/p525/ar02.html#d0e7846
<Quote>
Court awards and damages. To determine if settlement amounts you
receive by compromise or judgment must be included in your income, you
must consider the item that the settlement replaces. The character of
the income as ordinary income or capital gain depends on the nature of
the underlying claim. Include the following as ordinary income.
1.
Interest on any award.
2.
Compensation for lost wages or lost profits in most cases.
3.
Punitive damages, in most cases. It does not matter if they
relate to a physical injury or physical sickness.
4.
Amounts received in settlement of pension rights (if you did not
contribute to the plan).
5.
Damages for:
1.
Patent or copyright infringement,
2.
Breach of contract, or
3.
Interference with business operations.
6.
Back pay and damages for emotional distress received to satisfy
a claim under Title VII of the Civil Rights Act of 1964.
7.
Attorney fees and costs (including contingent fees) where the
underlying recovery is included in gross income.
Do not include in your income compensatory damages for personal
physical injury or physical sickness (whether received in a lump sum
or installments).
</Quote>
The relevant lines are:
<Relevant>
Punitive damages, in most cases. It does not matter if they relate
to a physical injury or physical sickness.
Do not include in your income compensatory damages for personal
physical injury or physical sickness (whether received in a lump sum
or installments).
</Relevant>
So is the 50k a year punitive damages or compensatory? Sounds like
punitive to me, though if the prisoners were physically beat up or
physically tortured, then a part of the 50k would be compensatory
damages and consequently tax free (if they were beat up once in the
year and the recovery time was 30 days, then I would imagine that
1/12th of the 50k would be tax free).
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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
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<< to this newsgroup as well as our anti-spamming policy >>
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Posted by Stuart Bronstein on April 30, 2008, 1:49 pm
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> So is the 50k a year punitive damages or compensatory? Sounds
> like punitive to me, though if the prisoners were physically beat
> up or physically tortured, then a part of the 50k would be
> compensatory damages and consequently tax free (if they were beat
> up once in the year and the recovery time was 30 days, then I
> would imagine that 1/12th of the 50k would be tax free).
I'd think the damages are compensatory, not punitive. The state is not
trying to punish itself for wrongdoing, it's trying to give the convict
something to compensate for his wrongful time in prison.
In addition, it is not for personal injuries - generally the courts
require the payment be for actual physical damage rather than
psychological injury or generalized bad treatment.
Stu
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<< The foregoing was not intended or written to be used, >>
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<< that may be imposed upon the taxpayer. >>
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<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
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Posted by removeps-groups@yahoo.com on April 30, 2008, 3:08 pm
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> I'd think the damages are compensatory, not punitive. The state is not
> trying to punish itself for wrongdoing, it's trying to give the convict
> something to compensate for his wrongful time in prison.
So if the 50k a year is compensatory damages, you think it is all
federally tax free? Or as you saying that the 50k is for not specific
personal injury, and is therefore is fully federal taxable? My
original response said that the 50k is also fully federal taxable, but
because it is punitive damages.
The distinction between "punish itself for wrongdoing" and "trying to
give the convict something" seems rather subjective to me. It is
punitive damages or compensation, depending on your point of view. In
the welfare state, perhaps "trying to give the convict something" is
the way to see it, as governments are always-giving entities.
Also, if there was was specific physical injury, as in the case of
torture, then I think part of compensation would be tax free.
> In addition, it is not for personal injuries - generally the courts
> require the payment be for actual physical damage rather than
> psychological injury or generalized bad treatment.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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