Robert W. Wood

A successful Helms-Burton Act plaintiff is likely to have a good argument that settlement proceeds should qualify for long term capital gain treatment.

Discover the 10 key facts about IRS 1099 forms, including the different types and reporting requirements. Learn how non-employment income reports can impact your taxes.

Litigation funding involves plaintiffs or lawyers who "borrow" money before a case is resolved with the defendant. The money may be for case expenses, living expenses, etc. The money comes from litigation funders and is non-recourse, so if the case is unsuccessful, the plaintiff and lawyers do not have to pay it back. But taxes can get complicated. Most deals are not documented as loans, so it is not really borrowing. Most are structured as purchases by the funder, but to be taxed only in the future when the case is resolved. If the case goes bust, the plaintiff or lawyer does not have to pay back the funder, but must pay taxes then on the funds provided.

Comedian Carlos Mencia has been charged with 12 felony tax counts in California and stands accused of failing to report $8.7 million in income from 2019 to 2024. Most criminal tax cases are federal, but this state-level prosecution signals a potential shift in California's approach, that could reveal the Golden State's already harsh tax man doubling down on tough enforcement. Prosecutors allege that Mencia ignored 78 notices from the Franchise Tax Board regarding his unfiled returns. If true, that's a lot of notices, making it easier for the state to pursue criminal charges.

Legal fees are taxed to plaintiffs, so they need to be able to deduct them, even with a qualified settlement fund. Despite changes in the tax law, it is still possible.

Not every business shows a profit, but if your "hobby" is a business, you may be able to write off expenses against other income. Here are some tips.

Legal settlements involve taxes, and understandably, most plaintiffs hope that their settlement proceeds are tax-free. Compensatory damages for personal physical injuries are generally tax-free, but punitive damages and interest are always taxable. The specific wording of the settlement agreement is important, and poor wording can result in the entire settlement being treated as 100% taxable by the IRS. Good settlement agreement language can make the difference between a good and bad tax result.

7 Min Read In Brief Litigation funding was once mainly used by an individual plaintiff for a single case, but law firms now use it heavily, often for portfolios of cases, which allows funders to spread risk.

The Senate has followed the House in passing H.R. 5366 to extend the federal tax exclusion for wildfire recovery payments. It extends the Federal Disaster Tax Relief Act of 2023 that expired on December 31 2025, now applying the exclusion to payments for wildfires declared before January 1, 2027, irrespective of the payment date. The new law creates Section 139M in the tax code and aims to relieve pressure on survivors by making the disaster declaration date, not payment receipt, the qualifying factor for tax years after 2024. While ambiguities persist regarding insurance payments and the tax treatment of non-individual entities, the President is widely expected to sign the bipartisan bill into law.

Sales of legal claims and borrowing on claims are common, and they face different tax rules. Read the documents carefully and consider tax reporting rules.