Wife received a legal malpractice insurance check for a large amount. The check was issued because her attorney had blown a buyout agreement for spousal support. The attorneys insurance company settled for the policy limits. What is her tax liability?
I've already tried...
My cpa/ tax attorney was informed of this when we filed our taxes last year the check was paid in 08. My cpa/ tax attorney consulted with another cpa and believed that we were not liable since it was an insurance payment for damages incurred (or something like that). I am here for a second opinion since the IRS just sent us a letter questioning the check.
Answers
Expert
The proceeds should be tax exempt as a the settlement of a law suit, and as such you should have not tax liability. What you need to do is explain that to the IRS, and provide the supporting documentation. The only thing that I could suggest is maybe the IRS was tipped off because it was included on your return in an incorrect place.
Check your 2008 return and see if it is listed as income. Also did you receive a 1099 for the proceeds for 2008? If so, that may shed more light on the situation. If you did it may be classified as income, if you did not then it may not. If the IRS is classifying the money as a lump sum alimony payout then it would be taxable as alimony received.
It will all depend on the 1099 issue. If you have further questions please feel free to reach out to me further.
peace
Joe Carreiro
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I am concerned due to the size of the check but since had the attorney not blown the buyout agreement she would have received funds tax exempt why would an insurance payment for damages incurred be taxed?
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I graduated from the University of Massachusetts in 1992, and obtained my law degree, (J.D.), from Franklin Pierce Law Center in Concord, New Hampshire in 1996. In the past, I have maintained a solo law practice and have also been an associate in other law practices. What my office, Nakata Consulting, LLC, provides is professional planning and counseling services and federal, state, and local tax planning and preparation. Most importantly, we do this at affordable prices, all by offering solutions, and implementing strategies to help seniors and their families’ problem solve. When not planning or preparing income taxes, my office works to match seniors and their families up with providers in the elder service industry. We can assist seniors and their families with estate and elder planning (preparation of short term and long term benefits application(s), health care and durable power(s) of attorney (advanced directives), wills, trusts). We can locate and work directly with companion, home health agencies and geriatric care managers. We provide financial counseling, property management and book keeping services, and work with financial planning service providers to assist individuals with the management of their assets. Most importantly we do this at affordable prices, all by offering solutions, and implementing strategies to help seniors and their families’ problem solve. With the client base I work with, I am called upon often to find other local small business people to help service the needs of those I work with, and I would welcome the opportunity to learn more about other small businesses, and see if there is a way that we can help each other. I have a growing network of service providers and small business people I work with, and often I find I can find solutions for folks by matching businesses up with other business folk, to everyone’s benefit. To that end, we also assist small businesses with choosing what type or business entity to form, and registration of and organization of their business. We can work with small business owners to create growth development ideas, by helping them find service providers to support them with start up and growth decisions, including but not limited to software, equipment, web site development and marketing. View Profile
Did you receive a form 1099? if so that will answer a lot of questions.
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