I have been advised that a request will be coming through for a settlement payment in the amount of $15,000 regarding a land use issue. The payment will be made out to an attorney firm...

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Q. (cont.)

  1. Can you please advise if this payment is reportable to the claimant?
  2. And what if claimant is a corporation?
  3. And if reportable to claimant, can you confirm that both the attorney firm and the claimant would both receive a 1099 for the $15,000? Box 14 for attorney firm and box 3 for claimant?

A.

It will depend on exactly what the settlement is for. While many settlement payments are considered income to the claimants, there are a few exceptions, including payments that are for property damage claims that do not exceed the value of the property. But “land use” suggests to us that it is reportable income.

The IRS Instructions for Form 1099-MISC say, “Generally all punitive damages, any damages for nonphysical injuries or sickness, and any other taxable damages” are required to be reported (see pages 5-6). Conversely, settlements that are “make good” payments that cover just the cost damage are typically not reportable.

However, if the claimant is a corporation, then you do not have to report the payment to the claimant.

Because the payment will be made out to the attorney, you must report the payment to the attorney in box 14.

 

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