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Posted by John H. Fisher on May 8, 2008, 9:32 am
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>
>
>
> >> Woody wrote:
> >> >>> I am suing a professional for actual damages. When I win, will the
> >> >>> proceeds
> >> >>> be taxable, since they are just to reimburse me for what I lost? Are
> > my
> >> >>> legal fees tax deductable?
>
> >> >>> If it is more complicated than this, what are the issues involved?
>
> >> >> It is more complicated. What is the nature of the damage you suffered?
>
> >> > My accountant gave me advice which turned out to be seriously wrong,
> >> > resulting in much higher taxes. �He had all the information needed to
> > answer
> >> > correctly, but (apparently) chose to make incorrect assumptions rather
> > than
> >> > looking at the information.
>
> >> I found a good overview and discussion of some of the issues involved at
>
> >>www.weitzlux.com/irs/lawsuitsettlements_915.html
>
> >> (I have no connection to the publisher of this web site.)
>
> >> All income from whatever source is taxable, unless specifically
> >> excluded. �Physical injury settlements are specifically excluded,
> >> punitive damages normally are taxable.
>
> > Right (and that paraphrases IRC 104). �However, the key word is INCOME.
> > Not
> > all transfers of money represent income to any/all of the parties
> > involved.
>
> > Suits of equity are about making one whole for some damage. �Income should
> > be recognized in them only when the payment is to represent income lost
> > via
> > the act of damage (back pay, lost wages, earning potential, etc....) or
> > when
> > it is reimbursement for an amount permitted as a deduction (tax benefit
> > rule). �Otherwise, it's not income and therefore doesn't fall under the
> > general rule of inclusion in IRC 61.
>
> > Punitive damages are a matter of law, not of equity, and that's why
> > they're
> > taxable.
>
> >> Are you saying that your taxable income would have been the same,
> >> regardless of whether you had received "correct" or incorrect advice?
> >> In other words, the bad advice resulted only in higher taxes on the same
> >> amount of income?
>
> Yes, my income would have been the same in any event; it more or less comes
> down to improper deduction timing.
>
> Since it is not income, but a damage of avoidable taxes paid, it presumably
> would not be taxable?
> Would the legal fees still be deductable even if the award is not taxable?
>
> --
> << ------------------------------------------------------- >>
> << 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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� � � � >>
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> << ------------------------------------------------------- >>- Hide quoted
text -
>
> - Show quoted text -
The legal funds could be deductible only to the extent they were
charged for the recovery of "TAXABLE" income.
--
<< ------------------------------------------------------- >>
<< 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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