The 2007 Update to Taxation of Damage Awards and Settlement Payments, 3rd Edition, brings readers up to date on judicial, Congressional and IRS developments in this ever-changing area. Highlights include:
• The landmark Court of Appeals decision in Murphy v. IRS. In August, 2006, the D.C. Circuit held it was unconstitutional to tax damages for “human capital” received on account of injury to reputation. Then, in December, 2006, the court vacated its own decision and ordered new briefing and oral arguments.
• The first interpretation of the new statutory above-the-line deduction for attorneys’ fees.
• The IRS’ final regulations on attorney payment reporting regulations issued under Section 6045(f), ending years of debate over the interplay of these regulations with the Middleman Regulations.
• New section on legal fees in connection with class action cases.
• New material addressing when a plaintiff dies prior to reaching a settlement or obtaining a judgment.
• Updates on whether settlements and judgments are treated as wages for employment tax purposes.
• Updates to the treatment of stock options and deferred compensation in divorce.
• Tax implications when legal fees are paid by a third party.
• Latest updates on tax withholding when a settlement recipient is not a US taxpayer.
• New subsection addressing community property issues prevalent in divorce settlements.
• When legal fees relate to tax-exempt income.