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A personal injury case was settled and the settlement agreement

specifically stated that the money...
A personal injury case was settled and the settlement agreement specifically stated that the money paid was due to physical injuries arising from an occurrence within the meaning of Section 104 (a)(2) of the IRS code. The agreement went on to state that none of the money paid was on account of lost wages, lost earnings, lost earning capacity, punitive damages, etc. The settlement was intended to be tax free. However, the injured person who received the settlement money was just recently sent a 1099. It appears the payer mistakenly (or improperly) notified the IRS in a manner which resulted in a taxable event. What steps can be taken to correct this? Is there an IRS form that can be submitted? Does the payer need to be notified to correct the error? Any suggestions would be most helpful. Thanks
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5/17/2013
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,690
Experience: Taxes, Immigration, Labor Relations
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LEV : Hi and welcome to Just Answer!The form 1099misc should not be issued in this case - and seems as was issued by mistake. The first step should be to contact the payer asking for correction. In most situations a simple phone call would solve the issue. If the payer does not cooperate - a certified letter should be mailed asking for correction.
LEV : If correction is not made within a reasonable period - the taxpayer may contact the IRS. The taxpayer will use correct amounts in his/her tax return and will attach a note with explanations (including what steps were made to correct the issue)See for reference instructions - page 5 - http://www.irs.gov/pub/irs-pdf/f1099msc.pdf Form 1099-MISC incorrect? If this form is incorrect or has been issued in error, contact the payer. If you cannot get this form corrected, attach an explanation to your tax return and report your income correctly.
Customer: Thanks for your help. Excellent advice.
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,690
Experience: Taxes, Immigration, Labor Relations
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