Class Action Settlements

[taxmandan]

TTB, 3-18 in Lawsuit Settlements and Awards an example of 'not taxable' settlements is "Class action and other settlements for consumer goods or services if amounts were not deducted in an earlier year." I looked at IRC section 102(a)(2) and the IRM and can't find any reference to Class action settlements. Does someone have a citation for Class action settlements being 'not taxable' just for being a Class action, regardless of the nature of the settlement for personal injury, etc.?

[Bees Knees]

It doesn’t say it is non-taxable regardless of the settlement. It says it is non-taxable if the goods or services were not deducted in an earlier year. In other words, it is talking about a rebate of the purchase price. If I paid $100 for a processing fee by the title company on my house purchase closing statement, and then later a class action suit refunds me 27 cents because someone claimed the title company didn’t dote some i or cross some t, then that 27 cents I received is treated like a rebate on the $100 I was charged and is not taxable. No different than a patronage dividend on the rebate on my electric bill. If I don’t deduct the cost of electricity as a business expense, then I don’t have to pay tax on the rebate.

[taxmandan]

My client received a Class action settlement from the Fen Phen lawsuit. No interest was paid to her, it was payment for "reduced life expectancy." My read on the IRC and IRM is that it is for phyical injury and thus not taxable, but wanted to find something on this reference to Class action as well being not taxable. TTB says it, so it must be so, but I would sure like some IRM, court case or something that can be cited as official IRS position that Class action settlements are not taxable.

Some $4billion is to be paid out on this settlement to the plaintiffs, the lawyers get only 9% for their fees!