I just received a notice from the IRS stating that there has been changes with my tax return. Apparently Providian sent me a 1099 (which I did not receive) for a settlement they paid me. It is labeled as non employee compensation. Is a settlement taxable?
Re: Re: 1099 given for settlement? Rev and Tax Code 409 I think is the section pertaning to COMPENSATORY DAMAGE AWARDS I am batteling the IRS over this too
Re: Re: 1099 given for settlement? There's a thread on this over at Art of Credit. Basically, only personal injury pain & suffering and medical expense awards are excluded from s. 61's definition of gross income. It's taxable. Has been since congress welded some loopholes shut a few years back.
Re: Re: Re: 1099 given for settlement? Fines or penalties paid for violations of law are not tax deductible to a business. If a business can't claim it as a deduction then it's not income to the party receiving the funds. I ran into this once and that's how my tax preparer explained it to me. Monies paid to a consumer when a business violates the FDCPA or FCRA aren't COMPENSATORY DAMAGE AWARDS. They are penalties paid by a business for violation of law and as such aren't a legitimate business deduction there for they can't be income to the payee. ><- <>- ><- <> ~~~ ><- <>- ><- <> ><- <>- ><- <> ~~~ ><- <>- ><- <>
Re: Re: Re: 1099 given for settlement? Could you please post a link to the thread? I would very much like to read it. Thank you
Re: Re: Re: 1099 given for settlement? http://www.artofcredit.com/phpBB2/viewtopic.php?t=2287 http://www.fourmilab.ch/ustax/www/t26-A-1-B-III-104.html It's the only section that excludes any damage awards. Those awards listed are nontaxable. Others are taxable, falling into the gigantic maw of s. 61 rather than being saved by an exclusion. Taxability is not, however, the same as actually being taxed. It's possible that you could claim a loss in the current year or a prior year that would offset an award. For instance, if your mortgage came at a higher rate because of bad credit reporting, and when you got it cleared up you also had to pay to refinance, you might claim a loss for the extra interest and fees, and your otherwise-taxable recovery from a CA or CRA might simply offset the loss. No guarantees though.
