by John Darer® CLU ChFC CSSC RSP
The Michigan Lawyers Weekly gets it wrong on the tax treatment of a plaintiff's recovery.
The article in Michigan Lawyers Weekly asks "Did you ever wonder how the plaintiffs of such cases (lawsuits) are treated by the IRS? The author of the article, an experienced plaintiff only structured settlement consultant, responds "In cases where an actual “physical” injury has occurred, any recovery a plaintiff receives is treated as income tax-free per Internal Revenue Code § 104(a)(2)". (underline added for emphasis).
With respect to the income tax treatment of a plaintiff's recovery, the article (which is STILL in circulation and posted on the structured settlement consultant's website) IS NOT accurate because:
Internal Revenue Code § 104(a)(2) is an income tax exclusion which expressly states that punitive damages are not part of the exclusion. To wit...
(2) the amount of any damages (OTHER THAN punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness; (bold and capitals added for emphasis).
Structures 101 folks!