A class action settlement... Is it taxable


N

NadCixelsyd

As part of a class-action lawsuit, I will shortly receive about
$7000. The other party spilled some oil in Buzzards Bay, MA, back in
2003. Any owner of waterfront property who participated in the
settlement will receive some $$$. How is this taxed?
A - It's not
B - It's fully taxable when received (where do I report it next year?)
C - It is not taxable now, but it reduces the basis of the property.
(If this is the case, how would someone who sold their property in
2005 but received the $$$ in 2011 report this)
D - Other (?)
 
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A

Alan

As part of a class-action lawsuit, I will shortly receive about
$7000. The other party spilled some oil in Buzzards Bay, MA, back in
2003. Any owner of waterfront property who participated in the
settlement will receive some $$$. How is this taxed?
A - It's not
B - It's fully taxable when received (where do I report it next year?)
C - It is not taxable now, but it reduces the basis of the property.
(If this is the case, how would someone who sold their property in
2005 but received the $$$ in 2011 report this)
D - Other (?)
If the payment is for lost wages, profits and business income or any
interest, it is taxable. If some part represents punitive damages, it is
taxable. If the payment is to compensate you for damages to property, it
is only taxable to the extent that the amount exceeds your actual
damage. If you had filed a tax return in the earlier year and included a
tax deduction for damages caused by the spill ( a casualty loss), see
page 23 of IRS Pub 525 for how to report a recovery of a previously
deducted itemized deduction.
 
S

Seth

If the payment is for lost wages, profits and business income or any
interest, it is taxable. If some part represents punitive damages, it is
taxable. If the payment is to compensate you for damages to property, it
is only taxable to the extent that the amount exceeds your actual
damage. If you had filed a tax return in the earlier year and included a
tax deduction for damages caused by the spill ( a casualty loss), see
page 23 of IRS Pub 525 for how to report a recovery of a previously
deducted itemized deduction.
If it is to compensate for property damage, wouldn't the excess over
the actual damage be taxable (ordinary income), and the amount
compensating for actual damage (reduction in value) be a reduction in
basis?

In that case, if the property was already sold, that payment would be
capital gains. (If the property was sold short-term, I don't know if
the late payment would be long-term or short-term.)

Seth
 
N

NadCixelsyd

On 5/29/11 10:14 AM, NadCixelsyd wrote:> As part of a class-action lawsuit, I will shortly receive about

If the payment is for lost wages, profits and business income or any
interest, it is taxable. If some part represents punitive damages, it is
taxable. If the payment is to compensate you for damages to property, it
is only taxable to the extent that the amount exceeds your actual
damage. If you had filed a tax return in the earlier year and included a
tax deduction for damages caused by the spill ( a casualty loss), see
page 23 of IRS Pub 525 for how to report a recovery of a previously
deducted itemized deduction.
It was not for lost wages.
I don't know if any part of my share was for punitive damages.
Were there damages to the property? Yes. The property became slightly
less usable for a few months after the oil spill. But since the spill
occurred in April, it had minimal effect on my summer season on
Buzzards Bay.
Did it have any long term effect on the property? Not that I can see,
but I'm not an environmental expert.
Did I claim any casualty loss on any tax return? No. The value of
any loss would have been extremely hard to value and/or defend in an
audit.

With nothing else to go on, I hereby declare that the oil spill did
$7000 worth of damage to my property. When the check arrives in a few
weeks, I will cash it.
 
A

Alan

It was not for lost wages.
I don't know if any part of my share was for punitive damages.
Were there damages to the property? Yes. The property became slightly
less usable for a few months after the oil spill. But since the spill
occurred in April, it had minimal effect on my summer season on
Buzzards Bay.
Did it have any long term effect on the property? Not that I can see,
but I'm not an environmental expert.
Did I claim any casualty loss on any tax return? No. The value of
any loss would have been extremely hard to value and/or defend in an
audit.

With nothing else to go on, I hereby declare that the oil spill did
$7000 worth of damage to my property. When the check arrives in a few
weeks, I will cash it.
Just be aware that you will receive a 1099-MISC for the distribution
that you will have to account for on your tax return.

The settlement agreement (Bouchard Litigation) provides no opinion on
tax consequences and leaves it up to each class member to make the
determination as each class member had different circumstances.
 
N

NadCixelsyd

Just be aware that you will receive a 1099-MISC for the distribution
that you will have to account for on your tax return.

The settlement agreement (Bouchard Litigation) provides no opinion on
tax consequences and leaves it up to each class member to make the
determination as each class member had different circumstances.
OK. What do I do with a 1099 that represents a non-taxable event?

When the property was purchased, certain economic and enjoyment
benefits were expected. Given interest, taxes, and upkeep, that
figure far exceeds the $7000 settlement even for one year. I'm
declaring that the entire $7000 represents a partial refund for loss
of benefit/enjoyment. That's my position.
 
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B

Bill Brown

OK.  What do I do with a 1099 that represents a non-taxable event?

When the property was purchased, certain economic and enjoyment
benefits were expected.  Given interest, taxes, and upkeep, that
figure far exceeds the $7000 settlement even for one year.  I'm
declaring that the entire $7000 represents a partial refund for loss
of benefit/enjoyment.  That's my position.
OK, that would be taxable income since you have declared the payment
to be compensation to you for your loss of personal pleasure rather
than compensation for the decline in value of your property.

In my opinion, the best you can hope for is a reduction in the basis
of your property but, I have NOT looked anything up.
 
D

D. Stussy

Bill Brown said:
OK, that would be taxable income since you have declared the payment
to be compensation to you for your loss of personal pleasure rather
than compensation for the decline in value of your property.

In my opinion, the best you can hope for is a reduction in the basis
of your property but, I have NOT looked anything up.
Note first: This would be a reduction of the casualty loss you'd otherwise
be entitied to claim in 2003. Since you did not claim the loss (expecting
the compensation "by insurance or otherwise"), you have no taxable
recovery -- assuming that the amount paid under the suit is not greater
than your loss without regard to compensation.
 
A

Alan

OK. What do I do with a 1099 that represents a non-taxable event?

When the property was purchased, certain economic and enjoyment
benefits were expected. Given interest, taxes, and upkeep, that
figure far exceeds the $7000 settlement even for one year. I'm
declaring that the entire $7000 represents a partial refund for loss
of benefit/enjoyment. That's my position.
I'm sticking with my original reply. To the extent that the $7000
does not exceed your casualty loss, you have no income. Your
temporary loss of "benefit/enjoyment" is not a casualty loss. A
casualty loss is measured by the amount that the FMV of your
property decreased immediately after the oil spill from the FMV
immediately before the spill. (I assume that you have a cost
basis in this property that is greater than the loss in FMV.) If
the drop in FMV was at least $7000, then the payment is not
taxable as it merely compensated you for your casualty loss.
 
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N

NadCixelsyd

I'm sticking with my original reply. To the extent that the $7000
does not exceed your casualty loss, you have no income. Your
temporary loss of "benefit/enjoyment" is not a casualty loss.  A
casualty loss is measured by the amount that the FMV of your
property decreased immediately after the oil spill from the FMV
immediately before the spill. (I assume that you have a cost
basis in this property that is greater than the loss in FMV.) If
the drop in FMV was at least $7000, then the payment is not
taxable as it merely compensated you for your casualty loss.

--
My "benefit/enjoyment" loss is equivalent to the benefit/enjoyment
loss of a potential buyer and hence, equivalent to the loss in FMV of
the property because of the oil spill.
 

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