A federal jury trial awarded $21.5 million in damages to a Springfield, Illinois man who was injured by an automatic sliding-glass door on a Holland America Line cruise ship dating back to 2011.
The personal injury damages awarded by the jury were $5M, which are tax free. The punitive damages were $16.5M which means a windfall for the IRS. That’s right, the entire $16.5M is taxable and the attorney fee, which is normally contingent for personal injury cases (30-40% contingent fee), will be challenging to deduct. That means the IRS will get the largest share of the $16.5M and the attorney will get a large cut as well.
Shockingly, it pays to evaluate the tax implications into your legal decisions when the punitive awards could create a huge tax bill.
As you might suspect, Holland America Cruise has appealed the verdict so a settlement for an amount less than $21.5M, but a higher award for personal injuries (higher than $5M) may be a win win solution.
Delerme CPA is a Atlanta CPA Firm with two convenient offices, Midtown Atlanta and Perimeter Village. If you are seeking to minimize your tax situation, call 404-445-8095 and ask for Victor Delerme. Our initial consultation is free.