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Tax Court Rejects Deductions from Case Settlement Payments



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On August 13, 2018, the Tax Court ruled that damages that a taxpayer receives in a settlement for physical injury or illness can generally be excluded from taxable income. 

In this new tax court case, a settlement payment was received by the husband for employment discrimination, so the U.S. Tax Court ruled it must be included in income. The court rejected the taxpayer’s argument that the employment discrimination led to a later physical injury. 

In addition, when the Veterans Administration agreed to pay the settlement, it was noted that there was no mention of any physical injury suffered by the taxpayer. 

If you have any questions or want to learn how to effectively plan your itemized deductions under the new tax laws, reach out to a tax professional at LBMC, and let us help you navigate the maze of tax reform. (T.C. Memo 2018-127)

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LBMC tax tips are provided as an informational and educational service for clients and friends of the firm. The communication is high-level and should not be considered as legal or tax advice to take any specific action. Individuals should consult with their personal tax or legal advisors before making any tax or legal-related decisions. In addition, the information and data presented are based on sources believed to be reliable, but we do not guarantee their accuracy or completeness. The information is current as of the date indicated and is subject to change without notice.