Announcement

Collapse
No announcement yet.

Lawsuit Settlement

Collapse
X
Collapse
 
  • Page of 1
  • Filter
  • Time
  • Show
Clear All
new posts
Previous template Next
    #1

    Lawsuit Settlement

    The client (plaintiff) settled with the defendant. This was a case of a partner in a medical practice suing a former partner for a number of reasons. The defendant wrote a personal check to the client. There was nothing to characterize the amount as to compensation owed, etc. Question: does the amount received by the client have to be reported on her personal tax return for 2017? If so is it ordinary income?
    Thank you!
    Tags: None
    #2
    If this was a lawsuit and the court ordered the judgement someone has to have docs that explain it all.
    Believe nothing you have not personally researched and verified.

    Comment

      #3
      Originally posted by Forensicacctnt View Post
      The client (plaintiff) settled with the defendant. This was a case of a partner in a medical practice suing a former partner for a number of reasons. The defendant wrote a personal check to the client. There was nothing to characterize the amount as to compensation owed, etc. Question: does the amount received by the client have to be reported on her personal tax return for 2017? If so is it ordinary income?
      Thank you!
      If this was a lawsuit settlement, you need more details before you can determine how much of that is taxable. Did the plaintiff deduct his losses prior to the settlement? There is an audit guide from IRS https://www.irs.gov/pub/irs-utl/laws...ettlements.pdf
      that I use and I also get the taxpayers attorney to give me written documentation. I don't go by what the taxpayer says because I have been burnt before!
      Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDR

      Comment

        #4
        Originally posted by Forensicacctnt View Post
        The client (plaintiff) settled with the defendant. This was a case of a partner in a medical practice suing a former partner for a number of reasons. The defendant wrote a personal check to the client. There was nothing to characterize the amount as to compensation owed, etc. Question: does the amount received by the client have to be reported on her personal tax return for 2017? If so is it ordinary income?
        Thank you!
        What does it matter what is written on the check or who it is from? The client was suing to get money for business matters. He received said money for business matters, its income to the business.

        Chris

        Comment

          #5
          Not Enough Information

          It is too simplistic to simply say this is "income." Depends on what was being settled.

          What about claims already entered as income in prior years? What about absolvement of debt? The original post is discussing parties that were at one time in some sort of partnership or other agreement.

          The "income", if indeed it is, would be measured by what was received versus what was given up. The income could also be characterized as ordinary income, capital gains, interest, compensation, or even debt forgiveness.

          Comment

            #6
            Lawsuit Settlement

            Thank you all for the responses to my question. I will need to get more information from the attorney to describe what written in documents for the settlement to the plaintiff. It did not go to court; plaintiff and the two defendants settled before any court proceedings took place. There were several grievances in the plaintiff's legal complaint, one of them being compensation. The two dentists were not partners in the usual legal partnership. They were actually employees of a medical center who owned the practice. One of the dentist (defendant) was given responsibility to run the dental practice directing the other dentist (plaintiff). The senior dentist would tell the plaintiff from time to time she was a partner in the practice, but there was nothing in writing that stated this. Once I get more information I will post it. It may be a while since I will be out of town until July 16.
            Thanks again for your comments and points.

            Comment

              #7
              Several of the above replies say there is not enough information, but I think there's enough to answer the OP's main question. The amount received is all taxable income.

              Question: does the amount received by the client have to be reported on her personal tax return for 2017?
              Well, if she received the settlement proceeds in 2017, then yes.

              If so is it ordinary income?
              Almost certainly. If a portion of the settlement was designated as payment for her p'ship interest, then that portion would be taxed as a capital gain ... less her basis in the p'ship interest, if any. It's conceivable that some (or all) of the settlement was for income earned but not received, and if that's true, then that portion would be classified as SE income and, thus, be subject to the SE tax in addition to its being ordinary income.
              Roland Slugg
              "I do what I can."

              Comment

                #8
                Lawsuit Settlement

                Originally posted by Roland Slugg View Post
                Several of the above replies say there is not enough information, but I think there's enough to answer the OP's main question. The amount received is all taxable income.

                Well, if she received the settlement proceeds in 2017, then yes.

                Almost certainly. If a portion of the settlement was designated as payment for her p'ship interest, then that portion would be taxed as a capital gain ... less her basis in the p'ship interest, if any. It's conceivable that some (or all) of the settlement was for income earned but not received, and if that's true, then that portion would be classified as SE income and, thus, be subject to the SE tax in addition to its being ordinary income.
                Hi Roland,

                Thank you for your comments and help!

                Carl Allen, CFE

                Comment

                Previous template Next

                Disclaimer

                Collapse

                This message board allows participants to freely exchange ideas and opinions on areas concerning taxes. The comments posted are the opinions of participants and not that of Tax Materials, Inc. We make no claim as to the accuracy of the information and will not be held liable for any damages caused by using such information. Tax Materials, Inc. reserves the right to delete or modify inappropriate postings.

                Working...
                X