The 2006 Cumulative Supplement to Taxation of Damage Awards and Settlement Payments, 3rd Edition, brings the practitioner up-to-date on Congressional and IRS changes to this ever-changing area. Highlights include:
• The Supreme Court decision in Commissioner v. Banks. In Banks, the Court, siding with a majority of Circuit Courts, held that as a general rule a plaintiff must include contingent attorneys’ fees in gross income and then deduct them. A plaintiff generally cannot exclude attorneys’ fees, reporting only net income, as had been espoused by a minority of Circuit Courts.
• Latest updates of the physical sickness prong of Section 104(a)(2). A review of case law and other authority which discusses physical sickness.
• New subsection addressing payments received by the non-injured party in the context of Section 104(a)(2).
• An analysis of a plaintiff’s ability to assign his claims. The discussion includes the validity, timing and impact of an assignment as well as valuation issues.
• A discussion of the torts wrongful birth and wrongful life and whether a settlement or judgment under each may qualify under Section 104(a)(2).
• Updates to the definition of front pay, and whether it is excludable from income.
• New material addressing the general welfare exception to gross income. This exception excludes income received from the government which is in the nature of a welfare benefit.
• A review of Section 1234A, "Gains or Losses from Certain Terminations," which may affect the characterization of settlements.