# Does the government tax court settlements?

**URL:** <https://boards.straightdope.com/t/does-the-government-tax-court-settlements/370343>\
**Category:** Factual Questions\
**Created:** [August 26, 2006, 6:22pm UTC](https://boards.straightdope.com/t/does-the-government-tax-court-settlements/370343 "2006-08-26T18:22:14Z")\
**Posts on this page:** 6\
**Page:** 1

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**Author:** ![WaterBeGood](https://avatars.discourse-cdn.com/v4/letter/w/9de0a6/32.png) [@WaterBeGood](https://boards.straightdope.com/u/WaterBeGood)\
**Post date:** [August 26, 2006, 6:22pm UTC](https://boards.straightdope.com/t/does-the-government-tax-court-settlements/370343/1 "2006-08-26T18:22:14Z")

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Say you got hit by a drunk driver, and when you sued him, you won the case for 100 grand. Does the government get any of that?

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**Author:** ![WaterBeGood](https://avatars.discourse-cdn.com/v4/letter/w/9de0a6/32.png) [@WaterBeGood](https://boards.straightdope.com/u/WaterBeGood)\
**Post date:** [August 26, 2006, 6:23pm UTC](https://boards.straightdope.com/t/does-the-government-tax-court-settlements/370343/2 "2006-08-26T18:23:17Z")

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I forgot to add, if they do, is it before or after the lawyer’s cut?

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**Author:** ![Hari\_Seldon](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hari_seldon/32/5173_2.png) [@Hari\_Seldon](https://boards.straightdope.com/u/Hari_Seldon)\
**Post date:** [August 26, 2006, 7:43pm UTC](https://boards.straightdope.com/t/does-the-government-tax-court-settlements/370343/3 "2006-08-26T19:43:15Z")

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IANAL, but my understanding is that the gov’t’s position on this is that you are getting compensation for a loss and that is not income. Certainly, when I collected $400 from an insurance company after the '97 ice storm to cover food lost in the freezer, there was no thought of declaring it.

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**Author:** ![MLS](https://avatars.discourse-cdn.com/v4/letter/m/919ad9/32.png) [@MLS](https://boards.straightdope.com/u/MLS)\
**Post date:** [August 26, 2006, 8:14pm UTC](https://boards.straightdope.com/t/does-the-government-tax-court-settlements/370343/4 "2006-08-26T20:14:08Z")

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That is my experience as well, from an auto accident personal injury settlement.

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**Author:** ![OldGuy](https://avatars.discourse-cdn.com/v4/letter/o/3bc359/32.png) [@OldGuy](https://boards.straightdope.com/u/OldGuy)\
**Post date:** [August 26, 2006, 11:29pm UTC](https://boards.straightdope.com/t/does-the-government-tax-court-settlements/370343/5 "2006-08-26T23:29:17Z")

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[QUOTE=Hari Seldon]  
IANAL, but my understanding is that the gov’t’s position on this is that you are getting compensation for a loss and that is not income. Certainly, when I collected $400 from an insurance company after the '97 ice storm to cover food lost in the freezer, there was no thought of declaring it.  
[/QUOTE]

What if you are awarded punitive damages as well? These are specifically not for compensation for a loss.

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**Author:** ![Billdo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/billdo/32/315_2.png) [@Billdo](https://boards.straightdope.com/u/Billdo)\
**Post date:** [August 27, 2006, 3:32am UTC](https://boards.straightdope.com/t/does-the-government-tax-court-settlements/370343/6 "2006-08-27T03:32:51Z")

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The answer to this question is rather complex, and depends on the nature of the suit and the settlement. Here is an [IRS Publication](http://www.irs.gov/businesses/page/0,,id=7050,00.html) that goes into some detail on it.

Generally, personal injury awards and settlements are not taxable, but contract or loss of earnings awards or settlements are. Punitive awards are generally taxable. But you really need to talk to a lawyer or accountant to get a specific answer.