Settlement Income

[sea-tax]

Schedule A med expense question, I'd like to be clear on what's tax-free.

I'm never quite sure about the non-tax-ability of these and they're usually such large amounts that it makes me nervous to tell somebody their award isn't taxable and to disregard it, while worrying that IRS might possibly come back on them (and me) later.

The ones I usually see are from car wrecks. They're mostly paid with a check giving no distribution detail at all (med/pain/punitive/whatever) and no 1099 is issued.

As I understand it:
Medical expense reimbursement is tax-free.
Pain and suffering is tax-free.
Punitive damages are taxable.

Is that correct?

If it is, what about when the check comes as described above (no distribution)? No doubt some is for medical expense (they have the doctor bills), but are you justified saying the rest is all for pain and suffering? Does IRS have any basis to maybe say some of it is taxable punitive damages?

BB Look at TTB pages 4-8 and 3-20 that provides a pretty straightforward answer to the run of the mill settlement issues. Basically it looks to me as though it boils down to compensatory versus punitive damages. The first is tax free the second is taxable.

I have yet to see the actual settlement so I can not comment on the fact whether it specially states one over the other. Both the attorney and the client are very adamant that the settlement was for pain and suffering a compensatory award. Should this not be clearly defined I am not sure how I will proceed.