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Category: Finance
Satisfied Customers: 4440
Experience:  Tax professional and business consultant for 35 years.
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How is the below handled from a tax standpoint for A and?

Customer Question

How is the below handled from a tax standpoint for A and B?
Family member A has caused family member B to suffer career losses due to some accusations made very publicly.
A has agreed to spend some money directly to vendors for B to repair the loss to his business and reputation. These vendors are limited to publicity, data recovery, legal advice etc. No hard goods, office rent etc. No money to B.
Submitted: 6 months ago.
Category: Finance
Expert:  PDtax replied 6 months ago.

Hi from Just Answer. I'mCustomer and can assist.

Expert:  PDtax replied 6 months ago.

Because this appears to be a negotiated settlement, not litigated, the criteria for litigation settlements do not apply.

I would treat this as a gift, no tax benefit to payor and tax free to recipient.

Thanks for asking at just answer. Please rate after review. I'mCustomer

Customer: replied 5 months ago.
There was litigation. A won judgments, but that was because B, as a family member did not fight. There now are clear areas where A shouldn't have, and we're settling out of court. Based on this information (that there was litigation, even though no award was given to B), does that change your answer? Thanks
Expert:  PDtax replied 5 months ago.

It does change my answer. The settlement will be taxable income to A and deductible by B under Raytheon v Comm, 1944. It does not matter if the litigation went to judgment or was settled, the relief received by A is taxable to A and deductible by B.