Couple Gets Lawsuit Settlement And Comes Out Behind After Tax
If you are taxed on the proceeds from a lawsuit, it seems like you should be able to deduct the legal fees involved at least to the extent of your income. Only that is not the way it generally works. There are a couple of exceptions with AGI deductions for discrimination suits (IRC 62(a)(20) and whistleblower suits (IRC 62(a)(21)), but that was no help to couple suing credit reporting companies.
July Developments – Part I – I Hate Whistleblowing
We need to go back to December 14, 2012 when it is generally believed that twenty children and six adults were killed by a school shooter at Sandy Hook Elementary School in Newtown, CT. In February 2022 Remington Arms manufacturer of the rifle used in the shooting reached a $73 million settlement with the families of nine of the victims.
Well now, it seems likely that the families would have excluded that income under Section 104. According to Fetzer they are not entitled to the 104 exclusion, because nobody was actually killed at Sandy Hook. He has a book on the subject.
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Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.