Call Now (800) 681-1295

Default tax treatment when business owner gets settlement

Table of Contents

    The general presumption, or default, with respect to damages in a business related recovery is that they are attributable to lost profits. Basle v. Commissioner, 16 T.C. Memo 745 (1957). This is significant because a recovery for lost profits is typically taxed at ordinary income rates, rather than the more tax-favorable capital gains rate.

    To reap the most benefit, taxpayers should attempt to allocate a recovery to capital assets (wherever possible), rather than allocate it as a lost profit. To support an allocation to goodwill or capital assets, the lawsuit must involve harm to such assets which is readily ascertainable in value. Arcadia Refining Co. v. Commissioner, 118 F.2d 1010 (1941). Then, once a taxpayer can demonstrate a capital recovery, it will be non-taxable to the extent of the taxpayer’s basis in the goodwill or assets and taxable at favorable capital gains rates to the extent that it exceeds basis.

    Tax Help Videos

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

    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

    (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
    (602) 975-0296
    New Mexico
    (505) 206-5308
    New York
    (332) 224-8515
    (512) 828-6646
    Washington, DC
    (202) 918-9329
    (702) 997-6465
    (786) 999-8406
    (385) 501-5934