Question

As the result of a newspaper article, V claims his character was damaged beyond repair, he lost his job, and he incurred medical expense for psychiatric care. His lawsuit requested that the court award him the following amounts:$500,000 for personal injury due to slander; $30,000 in lost wages; and $5,000 for psychiatric care.

            a. What are the consequences to V if he is awarded the $535,000?

b. V decides to accept an out-of-court settlement of $150,000. The newspaper and its insurer are willing to allocate the $150,000 in any manner that V requests. How should V have the amount allocated?

Answer 1

a) V will have taxable income of $530,000 if the court awards the amounts and specifications as requested.The $500,000 award for personal injury due to slander is not for physical injury or sickness and
therefore, represents taxable income. The award for psychiatric care will reduce any itemized medicaldeductions but could be taxable as a reimbursement if V received a tax benefit for them in a prior year.The award for lost wages is considered to be for back pay and thus is included in gross income..
b). V decides to accept an out-of-court settlement of $ 150,000. The newspaper and its insurer are willingto allocate the $ 150,000 in any manner that V requests. How should V have the amount allocated?Unfortunately, V no longer has much leeway
After the 1996 legislation, amounts received for nonphysicalinjuries (except for amounts paid for medical care) are taxable