Discussion:Personal Injury Attorney receives 1099...

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Discussion Forum Index --> Advanced Tax Questions --> Personal Injury Attorney receives 1099...
Discussion Forum Index --> Tax Questions --> Personal Injury Attorney receives 1099...

Woodstock (talk|edits) said:

18 February 2009

Does anyone have any ideas about this? Box 14 with $62,000 paid to attorney. The attorney then turns around and pays client $48,000 of this. The settlement to client is non-taxable. Do I...

1. Have my client issue 1099 to her client with Box 3 - Other Income and then it is up to her client to submit to IRS why he is not taxed on this money (and then write the amount off on my client's return), or

2. Do not file the 1099 to her client, but report the money she received and that was reported on her 1099 and then attach a disclosure statement with her return stating that the payout was a personal injury settlement paid to her client.

Thanks for your comments!

Riley2 (talk\|edits) said:	18 February 2009
1. No. 2. No.

Woodstock (talk|edits) said:

18 February 2009

Thanks Riley - I apologize for not having the right answer for this - I haven't dealt with this situation in the fifteen years I have been preparing tax returns, nor do I remember this type of situation coming up on the EA exam. And neither has my client had this happen - this is her first personal injury settlement. I read another post regarding this and could not come to any conclusion as to how to treat this. The check that my client received was written to both her and her client, and I would have thought that the issuer would have sent her a 1099 for her taxable portion.

I just assumed that my client shouldn't be responsible for paying tax on the full amount.

Kevinh5 (talk\|edits) said:	18 February 2009
Doesn't the attorney have gross receipts higher than this anyways?

Woodstock (talk\|edits) said:	19 February 2009
Hi Kevin - Yes, her total income with all 1099s and private clients is $150k+. But she should be able to subtract out the settlement money she sent to her client of $48k, right? I just don't want to report less on her Sch C and have the IRS send a letter.

Kevinh5 (talk\|edits) said:	19 February 2009
I would make sure that the net accurately reflected the client's accounting +/- non-cash items like auto mileage and non-deductible items. Do what you have to do to make sure that the gross is high enough and net is accurate.