Tax Matters for Lawsuits & Legal Settlements
Author: Jane Ryder
| CPE Credit: |
2 hours for CPAs
2 hours Federal Tax Related for EAs and OTRPs
2 hours Federal Tax Law for CTEC |
Per the IRS Education Provider Standards this course must be COMPLETED by 12/31/2028 to receive credits. NOTE: Go to My Professional Profile in your CCH CPELink account settings to ensure your name, and PTIN number; matches your PTIN card
This course reviews tax issues related to legal settlements, taxable and non-taxable. Including settlements for individuals and businesses, determining the components of lawsuit payments settled for a lump sum, reimbursed medical costs, and special rules for deductibility of attorney's fees. Plus, information forms, 1099s received for settlement income, settlements under the lemon Law, and defending the tax treatment of settlements under audit.
Publication Date: July 2025
Topics Covered
- Legal Settlements Pose Tax Burdens
- General Analysis of Awards and Settlements
- Compensation for Injury or Sickness and Punitive Damages
- Other Settlements and Awards are Taxable
- Federal Taxablility of Settlements & Awards
- Emotional Distress or Mental Anguish
- Lost Wages or Lost Profits
- Property Settlements for Loss in Value of Property
- Lemon Law Settlements
- Legal Fees for Securing a Taxable Award
- Treatment of Payments to Attorneys
Learning Objectives
- Explain which lawsuit settlements are exempt from tax
- Determine which settlements are eligible to deduct attorney fees
- Identify related tax reporting documents such as 1099s the taxpayer may receive
- List processes for categorizing settlement payments which settle as a lump sum before a court judgment
- Identify the various components of a non-taxable settlement related to physical injury or illness
Level
Basic
Instructional Method
Self-Study
NASBA Field of Study
Taxes (2 hours)
Program Prerequisites
None
Advance Preparation
None
