tag:blogger.com,1999:blog-8597101.post461753291283720505..comments2024-03-15T05:45:01.402-05:00Comments on Grits for Breakfast: Splitting hairs at the IRS over taxing compensation for false convictionsGritsforbreakfasthttp://www.blogger.com/profile/10152152869466958902noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-8597101.post-29189556248642937572010-11-22T08:19:45.958-06:002010-11-22T08:19:45.958-06:00It's compensating for the tort of false convic...<i>It's compensating for the tort of false conviction</i><br /><br />Herein lies the problem, and why this will probably be taxed. <br /><br />Texas has several issues that deal with taxable income in several ways. The IRS has others. The IRS wins, when it comes to taxes.<br /><br />In Texas, recovery for straight-up personal injuries is not taxable. That's because it's not for the compensation of lost wages or impairment or loss of earning capacity.<br /><br />If you are a Plaintiff's lawyer and you do not make sure that any judgment or settlement agreement reflects that a recovery is for personal injuries only, you are committing malpractice. <br /><br />Recovery for lost wages or loss of earning capacity, or any similar causeof action related to what you would have earned in the past or future, is 100% taxable. Lots of lawyers (and even a few judges) say that no award in a personal injury lawsuit is taxable, and they are completely wrong. The IRS will tax your income, or its substitute received in a lawsuit, period. Lots of people refuse to pay those taxes, usually on the advice of a lawyer, and they could very well get in hot water with the feds. <br /><br />My bet is that they are very likely to view Texas' version of an award as compensation for time and income that they would have earned had they not been in jail. So, 7:13 is right that to the extent that they're for last wages, recoveries such as this are recoverable. To the extent that it is for the violation of their rights, it is not, because that sort of violation, like a personal injury, is not income and is a non-taxable recovery for an injury that is specific to that person. (The deduction for attorney's fees is little consolation, though, since the money is gone whether it's in taxes or to an attorney.) <br /><br />So, whomever is fighting this in court had better couch it in terms or recovery for the personal injury/civil rights violation. If they don't, it will set a precedent for taxation.<br /><br />And unfortunately, far too few lawyers know the difference.<br /><br />RageAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8597101.post-81934295176669959822010-11-22T07:13:25.416-06:002010-11-22T07:13:25.416-06:00I thought this might be the case when you commente...I thought this might be the case when you commented on this in an article last week. I didn't think the IRS was going to give anyone a pass on not paying taxes on recovered lost wages. It's definitely taxable under the IRS code, and definitely taxable on court awards. The way the IRS sees it, wages are wages, whether you worked for them or not, are taxable.<br /><br />However, those wrongly convicted might be able to whittle down their tax burden on these awards quite a bit. For instance, the part of any awards they had to pay in legal and attorneys fees is deductible.<br /><br />And, there might also be some casualty and theft losses. However, these would have to be examined carefully.Anonymousnoreply@blogger.com