Large legal settlement

[kathyc2]

Client has been awarded a very large settlement for death of spouse in vehicle accident.  Of course I get a call asking if it's going to be taxable.  My response was it depends on how the settlement is worded, as to what payments were for.

I've never had this before and curious as to what paperwork client will receive.  Anything in addition to copy of court settlement?  Tax forms?  Statement from atty as to parts that are/may be taxable?

[Medlin Software, Dennis]

There must be hundreds of "references" online, any law office taking these cases on likely has a FAQ which will get you started.

[Lee B]

https://www.irs.gov/government-entities/tax-implications-of-settlements-and-judgments

https://hbla.com/the-five-key-irs-rules-of-taxation-for-lawsuit-settlement

[kathyc2]

Actually, my question was not if it is taxable or not. 

The question was what is the nature of the paperwork that preparers who have had this situation received from clients.

[Lee B]

"The party that pays a taxable settlement or judgment to the injured party and/or their attorney will issue a Form 1099-MISC, Form 1099-NEC, or W-2 to report the settlement. In some cases, the claimant and attorney are issued separate 1099s reporting the same settlement dollars.Jun 15, 2023"

 

[Lynn EA USTCP in Louisiana]

IRS has an audit technique guide on legal settlements. My reading of that guide leads me to conclude that settlements due to death are generally not taxable.  if the settlement earns interest of course that will be taxable. I always read a copy of the settlement document.

[Patrick Michael]

Had one last year.  Client received a W-2 for the part of settlement that was for back wages and a 1099 for the rest of the settlement.  I also asked for a copy of the final judgement that showed the break down between pain and suffering, emotional distress, medical payments , and punitive damages.