Have a Tax Question? Ask a Tax Expert
Hello,Internal Revenue Code Section 104(a) provides that compensatory damages paid for "personal injuries or physical sickness," are not considered taxable income to the recipient. Any other damage award is taxable. There is also something known as "return of capital," which occurs in a lawsuit where a plaintiff receives "restitution" of money or property that was misappropriated by the defendant. This type of recovery is also not taxable, because it's not income, since you would be recovering what was already yours. However, restitution is rarely paid in the case of wrongful death, consequently I would not expect you to be able to use the "return of capital" tax argument. If you have a lawyer who represented you in the wrongful death action, you may want to discuss the issue and find out why none of your recovery could have been agreed upon as made for either of the above-described legal theories -- because had they been so characterized, it would have meant nothing different for the defendant, but it would have allowed you to avoid any tax liability. If your lawyer doesn't have a good answer for you, then you may want to talk to a legal malpractice attorney and see if you may be able to recover the taxes as part of a lawsuit against your attorney.I can't promise you that this would work out in your favor, but it's the only strategy that I can come up with that would give you a chance of getting your taxes paid. There simply isn't any grounds for tax relief, otherwise. Please let me know if I can be of further assistance.