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Posted by Stuart Bronstein on April 30, 2008, 3:44 pm
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"removeps-groups@yahoo.com" wrote:
>
>> 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.
I'd say it's all taxable as compensation, not as punitive damages.
Sort of as compensation for the money he would have earned if he
hadn't been in prison.
I haven't researched this issue, however, and it is possible that
under some circumstances some of an award might be excludible as for
personal injuries, though I doubt it.
> 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.
I suppose in this situation it really doesn't make any difference.
But in some cases it may make a difference to the payor because
punitive damages may not be as deductible as compensatory damages.
And for the recipient the deductibility of attorneys fees with
respect to punitive damages may not be as great as for compensatory
damages (section 212 versus section 162). I doubt that would apply
in this case, however.
> Also, if there was was specific physical injury, as in the case of
> torture, then I think part of compensation would be tax free.
The payment would have to be to compensate specifically for that
physical injury. Since it's a generalized law based on days
incarcerated rather than physical damages caused, no part of this
kind of a payment is likely to be tax free on that basis.
Stu
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