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A video explaining the tax consequences of bad faith punishment



See the full video at https://youtu.be/v8v8h0UBbWg [1965653] Gary L. Greenberg and Irene Greenberg v Commissioner of Revenue No. 25420-07. (U.S.T.C. 01/24/2011) The U.S. Tax Court dealt with a recipient of insurance criminal damages in bad faith who sought to evade tax on the award. As a result, the recipient of the award of criminal damages for their insurers' unbelievable behavior resulted in a major tax consequence and not the unexpected plaintiffs thought they received. As Greenbergs could not convince the tax court of their position, the court not only struck down Greenbergs to confirm a tax shortfall of over $ 1 million, but further sanctioned them with an accuracy-related sanction, as the taxpayers had no substantial authority to justify their position. in damages.

The Tax Court noted that the definition of gross income largely includes any supplement to a taxpayer's wealth. Therefore, without exception from another statutory provision, damages from a lawsuit must be included in the gross income.

In general, exemptions from income are interpreted narrowly by the tax court. Greenbergs claimed that the punitive damages they received in their insurance case in bad faith can be excluded from income under section 104 a (3), mainly because punitive damages could not have been awarded without the insurance policy. The Tax Court discounted the argument "but for" and found that it was discredited by the Supreme Court's analysis of section 104 (a) (2) of O & # 39; Gilvie v. USA 519 US 79 (1996)). In that case, the Supreme Court considered an earlier version of 104 a (2) which excludes from income "the amount of any damages received (either by trial or agreement and either as lump sums or as periodic payments) due to personal injury or illness". The court justified that both the statutes and the Congress' intention to exclude only those injuries that compensate for personal injury or illness indicated that the exclusion does not include punitive damages.


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Barry Zalma, Esq., CFE, now limits his practice of acting as an insurance consultant specializing in insurance coverage, insurance claims handling, fraud and insurance fraud almost equally for insurers and policyholders.He also serves as an arbitrator or mediator for insurance-related disputes. and injury lawyer and me r than 52 years in the insurance industry. He is available at http://www.zalma.com and zalma@zalma.com.

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