"Physical Injury" Damages in an Employment Case? Depends on the "Shoehorn"

by John Darer® CLU ChFC MSSC RSP CLTC

The U.S. Tax Court decision in  Blackwood v. Commissioner, T.C. Memo 2012-190 decision is a reminder that trying to shoehorn "emotional/stress related damages as physical injury in the hope to get tax free treatment doesn't always "fit" the IRS' shoes

Lane Powell attorneys Jeremy Babener and Neil Kimmelfield do a nice job of summarizing that "when a taxpayer seeking damages for stress-induced ailments does not (1) obtain a medical diagnosis during the underlying dispute and (2) emphasize diagnosed physical ailments in communications with the defendant, the taxpayer will have difficulty establishing that any resulting damages were received on account of physical injuries or physical sickness. It remains to be seen whether taxpayers who do obtain, and use, medical diagnoses in their pursuit of damages will obtain tax-free treatment when their stress-induced physical ailments are less acute than multiple sclerosis or heart disease".  Read their full write up here Download Damages for Stress-Induced Physical Ailments

Download Blackwood T C Memo 2012-190

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