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I have received a payment from a qualified settlement fund…

I have received a...

I have received a payment from a qualified settlement fund because my home was in an area that was very close to the Rocky Flats /Dow Chemical & Rockwell Intl plant. Is this payment taxable to me? Should I expect to receive a 1099? If I don't receive a 1099 from anyone does that mean NO Tax is owed? Respectfully submitted,

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Answered in 14 minutes by:
3/11/2018
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 18,178
Experience: 15years with H & R Block. Divisional leader, Instructor
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Hello, I'm Robin. Welcome to JustAnswer. I'm reviewing your question now and typing up my reply. I'll post that in just a few moments.

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Customer reply replied 4 months ago
Thank you I'm standing by

No you should not expect to receive a 1099 for this. Whether any is taxable depends on your specific situation.

  • If you suffered a loss in value of the property and the settlement is less than the adjusted basis (cost + improvements - depreciation) of your property, then the settlement payment is not taxable and does not need to be reported on your tax return. However, you must reduce your basis in the property by the settlement amount you received.
  • If your settlement payment exceeds the basis of your property, then the excess will be considered income and you will include the excess portion in your return by following the steps listed below.
    • If you sold the property, you will need to adjust your basis and report the excess as gain on Schedule D of your personal income tax return.
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Customer reply replied 4 months ago
Can you tell me anything about IRS Code 468B? and how it applies to my question

That dealt with how the money had to be managed.

The settlement fund had to be managed in a way consistent with Treasury Regulation Section 1.468B-1. The settlement fund had to invest the money to earn some interest income, and any taxes due as a result of earning the interest had to be paid from the settlement fund itself.

That way no taxpayer (such as yourself) would be taxed on any interest.

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Customer reply replied 4 months ago
I'd like to share your answers with my tax consultant and get her take on them and get back to you in a few minutes can I do that?

Ok I will wait

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Customer reply replied 4 months ago
Thank you, I'll be right back

Ok

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Customer reply replied 4 months ago
Ok Robin I'm back...I just talked with her and told her to read her email I just sent and let me know what she thinks...sorry I took so long already but I should hear back from her shortly please stand by a moment longer

Ok

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Customer reply replied 4 months ago
Hi again Robin, I just spoke to her again and she said that after a little more research she found out I need to get a form 1120s-sf and the instructions. Can you provide me with that or point me in the right direction to get it?

I will give it to you but you do not file the form. The settlement fund files it.

All section 468B designated and qualified settlement funds must file an annual income tax return on Form 1120-SF. The return must be signed and dated by the administrator of the fund.

That is not for you but here is the form

https://www.irs.gov/pub/irs-pdf/f1120sf.pdf

Here are the instructions

https://www.irs.gov/pub/irs-pdf/i1120sf.pdf

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https://www.irs.gov/pub/irs-pdf/i1120sf.pdf

That is the link to the instructions.

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Customer reply replied 4 months ago
Ok, thank you I'll pull it up and print them out. One more question How do I go about determining if I lost any property value? and I was under the impression that the settlement was compensation for "Lost Property Value" and/or "Lost use of land"

I was going to say that your tax consultant would know but after the form request, the loss in value is what you were paid for. You look to the value back at the time of the event or just before then what the value was after. Then you follow my instructions from my first post.

I really cannot stress enough that the 1120 SF is not for you to file. Just want to make sure you realize that.

You are most welcome.
A positive 5 star rating is appreciated so I am credited for assisting.

Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 18,178
Experience: 15years with H & R Block. Divisional leader, Instructor
Verified
Robin D. and 87 other Tax Specialists are ready to help you
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Customer reply replied 4 months ago
YOU GOT IT...Great Job...If no one has told you that you were doing a good job today....YOU ARE

Thank you I appreciate that.

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