Lawsuit Settlement

I can't believe the lawyer had no issue with having me read the original complaint and the settlement statements. I must say he has been very cordial and helpful. So now I can read these statements to see if I am able to tell if the proceeds will be taxable. If not, the client will have to be referred elsewhere. I did meet with the client yesterday to explain what has transpired and how to go forward. She does not want to go to another preparer. She would rather pay the taxes and be done with it. It would cost her more in the long run if she went to someone else. I am glad that she doesn't have any significant money issues, so I explained that I thought because I felt that it may be taxable, that it would be to her benefit to send in estimated payments which she agreed. She wants no problems with the IRS nor the state for such a small amount of money.

Personally, as long as the attorney was willing to put it in writing I would exclude the settlement from income. "Injury" can be as little as a mild sprain or a few bruises. And if the settlement is for "injury" then it is not taxable.

And just in general we are better off leaving the practice of law to licensed attorneys and this is definitely a matter of law

Personally, as long as the attorney was willing to put it in writing I would exclude the settlement from income. "Injury" can be as little as a mild sprain or a few bruises. And if the settlement is for "injury" then it is not taxable.

And just in general we are better off leaving the practice of law to licensed attorneys and this is definitely a matter of law

We can’t rely on an attorney’s opinion regarding the taxability of a settlement (written or otherwise) if the attorney’s conclusion is unreasonable. For example, if an attorney gave me a written opinion saying that I can deduct his client's veterinary expenses for the reason that the dog is a valued member of the client's family and family medical expenses are deductible, my reliance on that opinion would be unreasonable. So, if the attorney hands me a written opinion saying that his client’s settlement isn’t taxable because arrest and incarceration is a "physical injury," but a court case on point has ruled that such a settlement is taxable, then relying on the attorney’s opinion would be unreasonable.

Personally, as long as the attorney was willing to put it in writing I would exclude the settlement from income. "Injury" can be as little as a mild sprain or a few bruises. And if the settlement is for "injury" then it is not taxable.

And just in general we are better off leaving the practice of law to licensed attorneys and this is definitely a matter of law

Virtually every poster to this web site practices law every day. It's called Federal tax law. Every CPA, every enrolled agent, every other practitioner who prepares a Federal income tax return for another person for compensation is really practicing law in a broad, non-technical, realistic sense. We just pretend that it's not the practice of law.

The question is: Is the preparation of Federal income tax returns for other persons for compensation the unauthorized practice of law under the laws of the various states regulating the practice of law? Answer: Obviously no.

I would not rely on the written opinion of just any attorney on U.S. Federal income tax law merely because he or she is an attorney, any more than I would rely on the written opinion of just any attorney on bankruptcy law, or on patent law, or on environmental law, or on any other area of law, merely because he or she is an attorney.

Many non-attorney tax practitioners know far more about some of the finer points of Federal income tax law than do many attorneys.

I myself have been licensed as an attorney for over thirty years, and I have been licensed as a CPA for much longer than that. I have probably been engaged in tax practice since before some of the youngest posters here were born. And yet, I can say that some non-attorney posters here know more than I do about certain aspects of tax law. Why is this? Answer (in part): The Internal Revenue Code contains millions of words. Each of us has his or her own areas of specialty or concentration, but we cannot know it all.

To the non-lawyer participants here, I say: Don't sell yourselves short. And, at least, be careful before accepting a written pronouncement about tax law as being reliable merely because the pronouncement comes from a lawyer.

Attorneys should not even be allowed to give tax advice unless they have proven they are qualified to do so. In fact, many smart attorneys quite specifically disclaim that they are so qualified and properly advise clients to seek out an expert such as a CPA or EA.