Lawsuits Awards and Settlements: IRS Audit Technique Guide

The information and techniques presented in this guide for lawsuit settlement examinations were developed during a project in Alabama, which began with media coverage of relevant tax issues.

Analyses of newspaper articles revealed that numerous lawsuits were being resolved in the state either by verdict or settlement for substantial amounts.

As a result, a separate project relating only to lawsuit verdicts and settlements was initiated and approved.

Early results of the project revealed that the vast majority of these lawsuit verdicts and settlements were escaping taxation.

Virtually none of the payments were reported on Forms 1099.

For this reason, it has been easy for these payments to fall through the gap of unreported income.