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Category: Tax
Satisfied Customers: 12663
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I am completing the final submission of my deceased father's

Customer Question

I am completing the final submission of my deceased father's estate 1041 form. Last year a jugdement was rendered for about 100k with 25k in atty fees for Interest on back pension. Do I include this income as other income or as interest.
JA: Thanks. Can you give me any more details about your issue?
Customer: The estate has been open since 2011 under probate though my dad passed in 2006. There was a legal action, class, taken of which he was a participant for back pay due him when he was a firefighter for the city. That money was realized in settlement a few years ago. Last year the continue action for the INTEREST due on the back pay was settled, thus realizing about 100K. Because this is called INTEREST but is really part of his past due wages, is it falling under the interst line of the 1041 or other income
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Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.
Hi,...Yes, this is taxed as interest to the estate....Under the origin of the claim doctrine, awards and settlements are taxable based on what the settlement was in lieu of. (pardon the grammar)....I would record as interest because of the distinction between back pay and interest ON unreceived back pay....Attorneys fees, by the way, are deductible here, unless the award or settlements was received net of the fees....Let me know if you have questions..Lane....I hold a law degree (JD, Juris Doctorate), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance & tax, as well as CFP® and CRPS designations. - I’ve been providing financial, Social Security/Medicare, estate, corporate & tax advice since 1986.