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**Chief** · 03-31-2006, 07:55 AM

awards

Speaking off the top of my head, I would say this award is other income, not subject to self-employment taxes. The line on 1040 for other income, but identify it.

**OldJack** · 03-31-2006, 10:17 AM

I agree with the Chief, but also wonder if a portion or all could be claimed as not taxable as a reimbursement of drug cost the taxpayer incurred and did not deduct.

**Armando Beaujolais** · 03-31-2006, 11:21 AM

It's about what "incentive proceeds" means.

I don't know exactly what it means in this case, and it's confusing because there is not a connotation of compensation for damages.

Could there be more to this than meets the eye? Did the client have connection to the drug company as something more than just a customer who overpaid?

It seems like "incentive proceeds" would be connected with some type of services provided by someone, not a refund of an overcharge. Certainly, a 1099-MISC would be connected with services if properly reported.

If the court used the term "incentive proceeds," and the company issued a 1099-MISC, you've got two different sources indicating some kind of services. That suggests a missing element to this story.

If the term "incentive proceeds" and the 1099-MISC both originated with the drug company, and there was no connection other than as a customer, you could have the drug company playing around with the reporting (to make it look better on the income statement perhaps?).

**Unregistered** · 03-31-2006, 07:19 PM

Thanks for your responses

I have been working all day and have not had time to view board. The taxpayer had no
connection to the drug company other than being the lead claimant in the case. He did
have to meet with lawyers and make depositions, other than that he performed no other
services. I think the drug company reported the award wrong and taxpayer should only
have to pay on the "incentive amt." reported on line 21 other income.

Dixie, in NC

**Armando Beaujolais** · 03-31-2006, 08:45 PM

Originally posted by Unregistered

I have been working all day and have not had time to view board. The taxpayer had no
connection to the drug company other than being the lead claimant in the case. He did
have to meet with lawyers and make depositions, other than that he performed no other
services. I think the drug company reported the award wrong and taxpayer should only
have to pay on the "incentive amt." reported on line 21 other income.

Dixie, in NC

If it was a refund from overcharges, why would the client have to pay anything? They paid for those drugs with after-tax money.

If it was truly a refund of an overcharge, there's no economic gain. No income, unless the amount had already been deducted as a medical expense. If so, it's a recovery.

If it's not really income, I'd be inclined to report $1 on line 21 with "See Statement" as the label, and include a statement with the return saying this was a refund of an overcharge and not taxable.

The client should have the court order. I'd be really curious to see what it says.

**Unregistered** · 04-01-2006, 06:59 AM

Armando Beaujolais

Taxpayer received total award of $14000. $1000 was for overpaying for the drug, $13000
for the "incentive amt". This is shown on letter from lawyer that handled the case. The
total $14000 was shown on the 1099misc box 7. I agee with you on the $1000 not being
taxed and have backed out on line 21 1040 with explanation. I am sorry I did not mention
this in the original post,but I am still wondering about the $13000 incentive amt. I have
never seen this term used before.

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incentive proceeds?

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