by Thomas D. Begley, Jr., Esquire, CELA<\/p>\n
Generally, \u201call income from whatever source derived\u201d is considered gross income by the Internal Revenue Service (\u201cIRS\u201d).[1]<\/a> However, income received as a result of a personal physical injury or a physical sickness is not considered income by the IRS.[2]<\/a> However, punitive damages are considered taxable income.[3]<\/a><\/p>\n Origin of the Claims Test<\/em><\/strong><\/p>\n The determining factor with respect to the treatment of litigation recoveries is the \u201corigin of the claim\u201d test. \u201cThe origin and character of the claim upon which an expense was incurred rather than the potential consequence upon the fortunes of the taxpayer\u201d is the controlling test.[4]<\/a> Generally, a claim for physical injuries or sickness qualifies for an exclusion.[5]<\/a> Cases may arise that are a mixture of physical injury and emotional distress. The treatment of claims in that situation will depend on the origin of the underlying claim.[6]<\/a> The IRS is not bound by an allocation in (more…)<\/span><\/a><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":" by Thomas D. Begley, Jr., Esquire, CELA Generally, \u201call income from whatever source derived\u201d is considered gross income by the Internal Revenue Service (\u201cIRS\u201d).[1] However, income received as a result of a personal physical injury or a physical sickness is…<\/span><\/p>\n