Call Now (800) 681-1295
Close

No mention of award in settlement agreement

Table of Contents

    Often the courts and the IRS will look to the intent of the payor to determine the tax treatment of the nature of the award in a settlement agreement. In fact, even in cases where the language of the settlement agreement is explicit, courts may still look behind the settlement agreement to determine the true nature of the award.

    By contrast, the mere intent of the taxpayer is insufficient. This is because the tax court has held that the mere belief of the taxpayer that he was settling a claim that was not set forth in the settlement agreement is insufficient to support his claim that the recovery was excludable from gross income. See Durret v. Commissioner, T.C. Memo 1992-682.

    When the court does consider the payor’s intent it will consider all the relevant facts and circumstances. Robinson v. Commissioner, 102 T.C. 116 (1994). As an example of how the courts consider all these facts and circumstances, consider McCann v. Commissioner, 87 Fed.Appx. 359 (2004). There, the settlement agreement failed to specifically allocate $839,000 in damages. In making its determination that the payment was for $400,000 in damages and $439,000 in interest, the court noted that that same exact allocation was written on a check issued to the plaintiff by the defendant.

    Similarly, in Hellesen v. Commisioner, T.C. Memo 2009-143 the court found that absent any evidence that payment was made on behalf of a personal physical injury or sickness, the court inferred the intent of the payor by looking at the Form 1099 he issued to the defendant, thus revealing that it was taxable.

    Tax Help Videos

    Representing Clients from U.S. and International Locations Regarding Federal and California Tax Issues

    tax lawyers

    Main Office

    Orange County
    2601 Main St. Penthouse Suite
    Irvine, CA 92614
    (949) 681-3502

    Our headquarters is located in Irvine, CA. Our beautiful 19,700 office space is staffed full-time and always available for our clients to meet with our highly qualified and experienced staff of Attorneys, Certified Public Accountants and Enrolled Agents. We also offer virtual consultations and can travel to meet with clients in one of our satellite offices.

    Outside of our 4 hour initial consultation option, we do not charge travel time or travel expenses when traveling to one of our Satellite offices, or surrounding business districts, where it is necessary to meet personally with taxing authority personnel, make court appearances, or any in person meeting deemed necessary for the effective representation of a client. To make this as flexible, efficient, and convenient as possible, David W. Klasing is an Instrument Rated Private Pilot and Utilizes the Firms Cirrus SR22 to service client’s in California and in the Southwest by air. Offices outside these areas are serviced via commercial jet airlines. None of these costs are charged to our clients.

    Satellite Offices

    California
    (310) 492-5583
    (760) 338-7035
    (916) 290-6625
    (415) 287-6568
    (909) 991-7557
    (619) 780-2538
    (661) 432-1480
    (818) 935-6098
    (805) 200-4053
    (510) 764-1020
    (408) 643-0573
    (760) 338-7035
    Arizona
    (602) 975-0296
    New Mexico
    (505) 206-5308
    New York
    (332) 224-8515
    Texas
    (512) 828-6646
    Washington, DC
    (202) 918-9329
    Nevada
    (702) 997-6465
    Florida
    (786) 999-8406
    Utah
    (385) 501-5934