1099 From Labor Case Florida

[poopazoopa]

I received a 1099 on a Labor Case that was settled. When the checks were issued I received a check in my name for 8000.00 and the attorney received one directly to them for 4000.00. I received my 1099 and is has the full 12000.00 on it. Is this correct? Also I have medical records from my physican that I had to be placed on anti-depression medication prior to be fired from my position. I know these funds are suppose to be taxable but is there anyway for me not to pay taxes due to the medical I had to seek prior to termination?

[DAW]

On the 1099 only, IRS took someone to court a while back on this issue and won. So unless there has been a reversal or IRS has changed the rules, yes the entire $12K is taxable to you. IRS has published rules on settlements that spell this out.

I am not sure what you mean about the meds. Who paid for the meds?

[poopazoopa]

I paid the co pay for the medication Lexapro which was prescribed to me for stress and physican records state it was due to work right before I wasterminated after 25 years. That is so not fair I have to claim the whole 12K when I only received 8000.00 and the attorney got the other 4000.00 in a check made payable to him.

[TSCompliance]

You did get $12,000: You got $8,000 plus $4,000 worth of legal services.

[DAW]

http://www.irs.gov/businesses/page/0,,id%3D7051,00.html

Amount to be Included in Income
In cases involving contingent fee arrangements, the gross award/settlement, without diminution for attorneys' fees or costs, should be included in the taxpayer's income. This treatment is in accord with IRC section 61 and the long established principle, "the fruit of the tree" theory, that income is taxable to the person who earns it and it cannot be assigned to someone else.

Taxing the gross amount from lawsuit proceeds has been upheld in Tax Court, as well as various circuit jurisdictions. See Gadlow, 50 T.C. 975, (1968)(Pennsylvania); Baylin, 43 F.3d 1451, 94-1 U.S.T.C. 50,029 (Fed. Cir. 1993)(Maryland); Alexander, 72 F.3d 938, 96-1 U.S.T.C. 50,011 (1st Cir. 1995), aff'g T.C. Memo. 1995-51(Massachusetts); Coady, T.C. Memo. 1998-291 aff'd, 231 F3d 1187 (9th Cir. 2000)(Alaska); Srivastava, T.C. Memo. 1998-362, rev'd, 86 AFTR2d 2000-5104 (Texas); Sinyard, T.C. Memo. 1998-364(Arizona); and Benci-Woodward, T.C. Memo. 1998-395, aff'd, 86 AFTR2d 2000-5102 (9th Cir. 2000) (California); Kenseth, 114 T.C. No. 26 (May 24, 2000). In Kenseth, the Tax Court held that the anticipatory assignment principles require a taxpayer to include in gross income the entire amount of judgment/settlement proceeds, undiminished by any contingent fee and regardless of the state where a fee agreement is signed. The Tax Court expressly rejected the principles enunciated in cases holding to the contrary.

[HRinMA]

You did get $12,000: You got $8,000 plus $4,000 worth of legal services.

Agreed. If the lawyer had not worked on contingency; you would have paid the lawyer out of your pocket with money that you paid taxes on. So either way you would pay taxed on the funds used to pay your lawyer.