If the settlement agreement says nothing about whether the damages are taxable, the IRS will analyze the payer's intention to characterize the payments and determine the filing requirements of Form 1099.Taxes on liquidations can vary widely. The IRS states that money received in a lawsuit should be taxed based on its purpose. Just because the customer could have agreed to accept the agreement in December does not mean that the customer has a constructive receipt. Under current Form 1099 reporting regulations, a defendant or other payer issuing a payment to a plaintiff and an attorney must issue two Forms 1099.If the agreement is subject to a confidentiality agreement, the defendant cannot deduct his payment from the settlement or his attorney's fees, in fact.
As for the tax treatment of litigation agreements and judgments, he is perhaps the preeminent tax lawyer in the United States. The rules are full of exceptions and nuances, so be careful how settlement awards are taxed, especially post-tax reform. And if the settlement agreement doesn't specify how earnings should be taxed, the IRS is free to make that determination on its own. Suppose a client verbally agrees to resolve a case in December, but specifies in the settlement agreement that the money will be paid in January.
They could get a settlement for their physical injuries, called “compensatory damages,” and then some punitive damages in addition, if the other party's behavior warrants it. The IRS has a strong interest in the tax treatment of litigation agreements, judgments and attorney's fees. If all or part of your agreement was for back wages from a W-2 job, then you won't receive a 1099-MISC for that party. But if you first sign the settlement agreement and then request a delay in payment, you will have a constructive receipt.
Attorneys should keep in mind that the gross income statement (box 10 of Form 1099-MISC) is the best information for an attorney. Tax regulations are not very clear exactly what these administration and oversight functions are in many cases, but simply being the plaintiff's lawyer and handling the settlement money is not enough. Blum was trying to get money from his lawyers that would have been tax-free if he had collected from the hospital, but I think the extraordinarily bad settlement agreement was fatal.