I am trying to determine how to tax the proceeds from a contract to not sue in the future..........no taxation, capital gains, or ordinary income.
Your comments will be appreciated.
Situation........... acreage owner received 45,000 from the power company. The power company is the owner and operator of several wind mills within a five mile radius of the acreage.
The purpose of the payment is to cause the acreage owner to give up his right to sue the wind mills' owner over problems resulting from the wind mills" operations..........such things as discomfort from light flickering from the blades, etc etc.
I have requested a copy of the contract so I can determine wording and length of time.......but am wanting to get started.
My instincts say the amount is taxable as ordinary income.............or, said in a different way------- to tax it otherwise could cause a crap-storm, ending in an audit, which could be beyond the financial capabilities of these taxpayers at this time.
The "screw-the-govt" side of me says, however, that the taxation of the current amount might be not taxable, since the type of recovery (or basis of lawsuit) would be for damages from medical problems, which would PROBABLY be not taxable.
It is conceivable that I am tilting at windmills since the contract might specify an outcome.........but taxpayers were sent a 1099 for rent, so I am guessing that the power company has intentionally/unintentionally set the stage already.
Do I have any basis in using the PROBABLE reason for a future lawsuit for determining the current taxation?
Has anyone handled a similar matter? Any attorneys reading this that have an opinion?
Thanks.