Fatino on The Tax Treatment of Verdicts and Settlements Following the Adoption of the Jobs Creation Act of 2004

John Fatino (Whitfield & Eddy, Des Moines) has published The Tax Treatment of Verdicts and Settlements Following the Adoption of the Jobs Creation Act of 2004: Paradise Found for the Employment Lawyer?, 27 N. Ill. U. L. Rev. 1-10 (2006). Here is part of the Introduction:

This article will examine the taxability of verdicts and settlements, define the contours of the statutes and regulations, and discuss the deductibility of attorney fees in certain types of cases. Shortly before this article went to press, a panel of the United States Circuit Court of Appeals for the District of Columbia held § 104(a)(2) unconstitutional, in so far as it permits the taxation of an award of damages for mental distress and loss of reputation, because such items would not have been income to the framers of the Sixteenth Amendment to the United States Constitution. Practitioners should closely examine this opinion for additional grounds of attack on the taxation of physical and non-physical injuries. Moreover, there is an excellent discussion as to whether a payment on account of physical injury is compensation for loss of capital. At the same time, at least one commentator has suggested that employers (which are not located in the D.C. Circuit) should continue to issue form 1099 to the employee "and leave it to the plaintiff/employee to battle the IRS over the taxability of the payment." The case, however, does not change the analysis for those taxpayers, which are in circuits other than the District of Columbia Circuit. Consequently, the article still functions effectively for practitioners in all circuits.