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TexLaw, Attorney
Category: Personal Injury Law
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Experience:  Lead Personal Injury Trial Lawyer
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We settled our case for malicious prosecution et al. Is the

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We settled our case for malicious prosecution et al. Is the award tax exempt?

The proposed long-form agreement states in part:

Consideration, Discharge and Release – By this Confidential Agreement and in consideration of the sum of xxx Dollars ($xxx) which is wholly for Plaintiff xxx personal physical injury arising out of the captioned case, ...

The question is, will this safely qualify for the tax exclusion of IRC Section 104(a)(2)?

Thank you for your question.

Yes, as long as the settlement agreement specifically refers to the funds as compensation for a personal injury (as opposed to lost wages, etc), it triggers IRC 104 and is not subject to income tax.

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