Legal Question in Legal Ethics in Alabama
income tax
I was in a law suit a few years ago and we came to a settlement. The settlement ammount was sent to my attorney who then took out his expenses and wrote me a check for my ammount . I recently received a letter from the IRS saying that I owed for the total ammount of the suit. Am I responsible for paying taxes on the ammount my attorney took?
1 Answer from Attorneys
Re: income tax
You will really want to check with a tax accountant on this. It is my understanding that the full amount of the settlement, to the extent that it is taxable, is imputed to you as income.
Whether settlement proceeds, or some portion thereof, is taxable depends largely on the nature of the settlement, i.e. back wages will be treated as income while personal injury award for medical expenses will not be.
I welcome other opinions, but assuming the settlement is taxable as income, my assessment is that the full amount of the settlement is income to you. The fact that you then had to use part of that income to pay for an attorney, or pay court fees, or pay for deposition transcripts, is irrelevant.
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