Taxation on Molestation cases, the new reality.

In this week's edition of The Robert Wood tax commentaries, we bring you a podcast discussing the taxation of molestation cases.  This topic is in the news again, with additional molestation cases settling.  Moreover, now that Treasury has issued an ILM on the documentation requirements, taxpayers and attorneys have at least some guidance about whether such injuries may be considered to meet the "observable harm" standard.

This standard, originally discussed in 2000 in Private Letter Ruling 200041022, known as the "bruise" ruling, is pervasive.  It centers around the concept that where there is observable and documented observable physical harm, such as bruises, bleeding, broken bones, etc, a section 104 exclusion should be available.

However, in cases where observable harm is not present or can't be proven,  the IRS will presumably take the position that the recovery is taxable. 

This podcast features Tax Attorney Robert Wood and Mark Wahlstrom, the host of The Settlement Channel.  Wahlstrom and Wood explore this important observable bodily harm distinction, outlining the appropriate cautions for attorneys, settlement professionals and taxpayers.  You'll want to consider this standard before you have a client attempting to structure an annuity on a tax free basis. 

Click here to listen to the most recent podcast.