Often the IRS will scrutinize settlement agreements to determine that the payment classifications reflect the underlying reality of the transaction. For this reason, it is important to substantiate or validate the settlement agreement. From a tax viewpoint, it is important to substantiate the agreement so the payment classifications are respect. The IRS would most like to classify all the payments as ordinary income and require the plaintiff to pay taxes at that those rates.
How to substantiate a settlement agreement was last modified: April 30th, 2019 by David Klasing