JohnH Posted September 12, 2007 Report Share Posted September 12, 2007 I was double-checking to be sure a payment to a client under the Fen-Phen/Redux settlement was non-taxable and ran into an unusual set of circumstances. I noticed an article that said two people who lied in claiming they took the drugs and received settlements were charged with failing to report the income on their tax returns. My first reaction was that these payments were non-taxable, so how could the recipients be taxed on the payment? The article went on to explain that the nature of the payment changes to taxable income since it was obtained through fraud. Not really looking for answers here and I don't have any clients filing fraudulent claims as far as I know, but I found it to be an interesting twist. Quote Link to comment Share on other sites More sharing options...
jainen Posted September 12, 2007 Report Share Posted September 12, 2007 >>these payments were non-taxable<< Settlements received as a result of physical injury are non-taxable, but there was no injury to these particular recipients. Now, what about restitution? Can they deduct the repayment of such previously-taxed income? I say no, because the income was not received under a claim of right so Section 1341 doesn't apply. Quote Link to comment Share on other sites More sharing options...
JohnH Posted September 12, 2007 Author Report Share Posted September 12, 2007 That is an interesting question. This was a news article and it didn't get into the technicalities, although it did say they were ordered to forfeit property bought with the proceeds and were facing a $100,000 fine, plus jail time. This wasn't a small matter - they got $250,000 in the settlement, which worked out to $150,000 after paying the lawyers. Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted September 12, 2007 Report Share Posted September 12, 2007 they got $250,000 in the settlement, which worked out to $150,000 after paying the lawyers. Did the lawyers have to pay back their Fee for helping their clients defraud the company? That is the more interesting question. Tom Lodi, CA Quote Link to comment Share on other sites More sharing options...
JohnH Posted September 12, 2007 Author Report Share Posted September 12, 2007 The article didn't address that question either, but I'm guessing the answer is "no". Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted September 13, 2007 Report Share Posted September 13, 2007 Did the lawyers have to pay back their Fee for helping their clients defraud the company? That is the more interesting question. Tom Lodi, CA Unless the lawyers were knowingly participating in the fraud, there is no reason why they should repay their fees, the crooks should have to repay it. The lawyers earned what they got. Only if they knew that their clients were lying to defraud the defendants, would they have any reason to repay anything. My guess is that they were victims of these crooks, too. No sane lawyer would participate knowingly in such a fraud, and lose their law license for such a relatively small fee. Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted September 13, 2007 Report Share Posted September 13, 2007 Unless the lawyers were knowingly participating in the fraud, there is no reason why they should repay their fees, the crooks should have to repay it. The lawyers earned what they got. Only if they knew that their clients were lying to defraud the defendants, would they have any reason to repay anything. My guess is that they were victims of these crooks, too. No sane lawyer would participate knowingly in such a fraud, and lose their law license for such a relatively small fee. KC, I know that, I was trying to be funny - guess it didn't work. Lawyers are usually an easy target for a quick joke. Of course, that does hit a little too close to home for you. Good to see you back on the board. Do you have an update for us? You are in my prayers. Tom Lodi, CA Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted September 14, 2007 Report Share Posted September 14, 2007 He's been moved to a rehab hospital, now, Tom. It's still a long road, but it's looking better. I'm at the hospital most of the day, and just look in here for a minute or two now and then when I get a chance. Sorry I did not catch your joke.... Please keep the prayers coming, I need all the help I can get!!!! Quote Link to comment Share on other sites More sharing options...
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