When Litigation Proceeds Are Taxable
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By Renee Howdeshell in Appraisal/Valuation, Class Action, Damages, Disgorgement, Economic Damages, Employer Discrimination, Failure to promote, Fraud, Intellectual Property, Lost Earnings, Medical malpractice, Personal Injury/Wrongful Death, Real Estate, Taxes, Valuation, Whistleblower Systems, Wrongful Termination
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January 19, 2019
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Economic damages should return a plaintiff to the position they would have been in “but for” the underlying improper act[s] by the defendant. They should not provide a windfall to plaintiff. In a similar vein, whether such damages are taxable is generally related to how the proceeds would have been treated if obtained in the ordinary course instead of through litigation. This is known as the “origin of the claim” doctrine.
However, there are exceptions to that guidance and differing treatments for the cost of attorneys fees depending on the source of the income. Advice from a tax professional is advisable, especially before structuring allocations to specific claims within a settlement. Additional detail is available is available in this article regarding whether litigation proceeds are taxable.
Renee Howdeshell
Renee Howdeshell is a founding member of Fulcrum Inquiry, an accounting, finance and economic consulting firm that performs damage analyses for commercial litigation, forensic accountings, royalty & distribution audits, financial investigations, and business valuations. Ms. Howdeshell holds a degree in Finance and Marketing from the University of Virginia's McIntire School of Commerce and is a Certified Public Accountant (CPA) and a Certified Fraud Examiner (CFE). She has testified as an expert witness in federal court, CA state court and arbitration regarding the results of her work. She can be reached at (213) 787-4112 and her resume is available at www.fulcrum.com.
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