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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16559
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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is a lawsuit money received for the lost of a safe deposit

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is a lawsuit money received for the lost of a safe deposit box taxable?

MyVirtualCPA :

Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

MyVirtualCPA :

How are you today?

MyVirtualCPA :

I'm sorry to hear about your safety deposit box.

MyVirtualCPA :

To the extent that the proceeds are to reimburse you for property that you already had, that is not taxable

MyVirtualCPA :

If any of the proceeds are punitive in nature then that is taxable

MyVirtualCPA :

Is there anything else I can help you with?

Customer:

thank you. I didn't report this amount received as I was told it was not taxable. I received a notice from the IRS stating this bank had reported this settlement as income received. The only thing I can think of is this bank sent in a 1099 (I rec'd nothing in the mail from this bank) instead of the proper form. Do you have this form #? Also, the IRS has stated I must send them $39,000 by 5/22/13. Is this true?

MyVirtualCPA :

I can't speak about your personal situation, but if the lawsuit proceeds are to compensate you for property that you lost, it is not taxable.

MyVirtualCPA :

The 1099 would be the proper form for them to send in.

MyVirtualCPA :

What you need to do is go to a local tax preparer such as a CPA, attorney, or EA and have them look over your lawsuit documents and prepare an explanation to the IRS about why this money is not taxable.

MyVirtualCPA :

Would you rate my service as excellent today?

Customer:

I sent a copy of the lawsuit to the IRS as well as the distribution list. the settlement was for all the lost jewelry. I included a letter to the IRS concerning all the details. I thought a 1099 was used for "earned income". The settlement was not "earned income: there is another form of which I do not know the # XXXXX is used for settlement money received.

MyVirtualCPA :

There is no form other than 1099 that the bank could use to report the income.

MyVirtualCPA :

However, just because the IRS got a 1099 does not make it taxable

MyVirtualCPA :

You would need a letter written by a tax professional outlining the reasons why this is not taxable income. SImply sending them a copy of the lawsuit would not be helpful, unfortunately. The IRS needs an explanation.

MyVirtualCPA :

1099-MISC is used for a variety of purposes, not just earned income.

Customer:

ok. however, I did send them a letter explaining in detail, the circumstance. This has turned into a nightmare for me. Thank you for your time.

MyVirtualCPA :

You're welcome and I'm sorry that you are going through this. Unfortunately, you would have to speak IRS language to them. A professional can make much more progress with this issue, and given the $39,000 at stake I think it would be money well spent.

MyVirtualCPA :

I'm sorry I can't personally help you write a letter, but we are prohibited from giving opinions and are limited to providing only general information on this site.

MyVirtualCPA :

If satisfied with our communication, please rate my response as "excellent" so that I may receive credit for assisting you today.

Customer:

I completely understand your position and yeas, I will rate you as excellent. Thanks again.

MyVirtualCPA :

You're welcome. Have a great night and I wish you the best of luck. A professional will fight for you on this, and as I said it would be money well spent.

Customer:

one last question, if that's ok? i don't have the $39,000 as most of my $ is tied up in secured deposits. is there any way i can pospone this demand for pmt?

MyVirtualCPA :

Yes, you don't have to pay while this is in dispute

MyVirtualCPA :

penalties and interest will continue to accrue, but if it's found it's not taxable everything - including penalties and interest would go away.

MyVirtualCPA :

And if it is, worst case scenario, found that you did owe the tax, you could spread the payments over 72 months

Customer:

so, i should send back the notice and mark "i do not agree with the ird decision?

MyVirtualCPA :

Yes you can do that

MyVirtualCPA :

And call the 1-800 number on the notice and ask for an extension because you are getting a tax professional to look over everything

Customer:

thank you again!!

MyVirtualCPA :

You're welcome

MyVirtualCPA :

Have a great night

Megan C and 2 other Tax Specialists are ready to help you