Do your clients understand the tax treatment of their settlements?
Abstract: A client’s elation over receiving a healthy settlement amount can quickly turn sour when the tax implications are revealed. This article summarizes two recent rulings from the U.S. Tax Court that serve as valuable reminders that “gross income” is defined broadly, while statutory exclusions, including those for damages, are narrowly construed. A sidebar explains the return of capital exclusion. Stassi v. Commissioner, No. 2021-5 (Tax Ct., Feb. 8, 2021). Blum v. Commissioner, No. 2021-18 (Tax Ct., Feb. 18, 2021).