Tax
Jun. 24, 2026
Settlement agreements without tax language increase your taxes
A settlement agreement's tax language can be as important as the settlement amount itself. Plaintiffs who ignore allocations and reporting provisions may find the IRS taxing far more of their recovery than expected.
Robert W. Wood
Managing Partner
Wood LLP
333 Sacramento St
San Francisco , California 94111-3601
Phone: (415) 834-0113
Fax: (415) 789-4540
Email: wood@WoodLLP.com
Univ of Chicago Law School
Wood is a tax lawyer at Wood LLP, and often advises lawyers and litigants about tax issues.
Legal settlement agreements almost always involve tax issues. Money is being paid by someone and received by someone else. Defendants understandably want to deduct whatever they have to pay. Plaintiffs hope the money they are receiving is tax free. Or if they cannot have that Holy Grail, they want the settlement to be taxed as long-term capital gain rather than as ordinary income.
Invariably, no plaintiff wants to pay taxes on their attorney fees. If th...
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