Sch D or lawsuit settlement?

[Possi]

My client went into a partnership (corp) with a friend.

The friend put up all the money. My client did all the work. He left his regular job for a large portion of the year to get this business up and running.

He has documented time and miles, as there was a lawsuit when the friendship dissolved over the business. I have the documents from the lawsuit.

The partner finally paid my client $6000 in a settlement. (Client referred to it as "shares" in the company, but I don't think that is correct.)

Client was in the business and out of the business all in less than a year, all in 2007.

There will be no K1 issued for him, as we understand.

My question is this:

Will the 6000 go on the Sch D with the company business, as short term capital gain?

Or is this considered a lawsuit settlement and not a taxable event?

Thanks again and always,
~possi

[thomtax]

Possi

Don't know the answer, but thought I would bring post back to the top. I'm interested in the answer.

LT

[Possi]

nobody knows...

... or nobody wants to venture here...

[TaxmannEA]

I think that you need to study the terms of the settlement to determine the nature of the payment. That being said; it is often difficult to determine this as these suits are often poorly documented. It sounds on the face as if your client is being compensated for his time and expertise. If that's the case, the settlement may be a type of self-employment income.
Use your notes to build a good logic chain and proceed with what you think is appropriate.