Money from personal injury suits are not subject to a tort tax. Damages received as a result of a lawsuit are made to compensate victims for injury. Furthermore, these damages are designed to make the victim whole again, not as a form of enrichment that should be taxed as income. This is true regardless of whether the damages were the result of personal injuries arising from a tort or some other form of legal wrong.

The earlier IRS rule was that only those damages recovered for a “tort or tort type rights” were excluded from gross income for tax purposes. Treating damages that arise from tort-type rights differently than other damages resulted in inequitable treatment against victims of discrimination and those that live in no-fault states.

The new regulations deleted the requirement that to qualify for exclusion from gross income, damages received from a legal suit, action, or settlement agreement must be based upon “tort or tort type rights.” The proposed regulations provided, instead, that the section 104(a)(2) exclusion may apply to damages recovered for a personal physical injury or physical sickness under a statute that does not provide for a broad range of remedies, and that the injury need not be defined as a tort.

A full copy of the new rule can be found here.

The lawyers at Gump & Faiella are long time members of the American Association for Justice (AAJ) formerly known as the Association of Trial Lawyers of America (ATLA). The organization was established in 1946 to safeguard the rights of the injured, strengthen the civil justice system, promote injury prevention, and foster the disclosure of information critical to public health and safety. AAJ advocated for the proposed IRS rule change. Gump & Faiella is pleased that the IRS has removed the tort-type rights tests from the taxable determination of damages.

Gump & Faiella, is focused on help its clients. Our efforts occur not only in the courtroom but through advocating for changes to laws and regulations which favor the rights of our clients. If you have a legal problem, give us a call for an appointment at our Moberly, Missouri or Columbia, Missouri office. If you have been injured we are happy to come to you for a house call.  Call Now 660-263-3100 or email us at info@tgflaw.com.

The post Tort Tax: IRS has published final rules to determine whether certain income that is the result of personal physical injuries or physical sickness is taxable appeared first on Gump & Faiella, LLC | Missouri.