personal injury settlement

[somewherenwsttx]

Texas, I receieved a personal injury settlement in 2001. My attorney told me I did not have to claim income for personal injury, and he has now provided the IRS with a sworn affidavit stating he told me I did not have to claim it.

I am in the Due Process Hearing stage and scheduled for a phone hearing on December 2, 2004. What should I do. I am financially unable to obtain legal counsel.

 

[abezon]

The attorney's sworn statement is great evidence if you lose and want to ask the IRS to forgive any penalties. A better solution is to win the IRS hearing and have the IRS agree the money is not taxable in the first place.

Do a search on taxable settlements. Basically, a settlement that replaces taxable income (lost wages, employment discrimination suit) is taxable. A settlement that compensates you for physical injury is not taxable. You need to prove that you were physically injured & that the settlement was for the injury & pain & suffering, not for lost wages. The problem with this is that you probably sued for lost wages as well as injuries, & the settlement did not specify how much money if any was for lost wages. Get a statement from your attorney that your settlement was for the physical injuries, medical costs past & future, & pain & suffering, not for lost wages. This is what worker's comp cases are settled for, and they are not taxable even when the settlement amount is based partly on lost earning capacity.

Good luck.