PG&E Fire Victim Trust Payout Treatment - Spidell

PG&E Fire Victim Trust Payout Treatment

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Message Board PG&E Fire Victim Trust Payout Treatment

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    • #305147
      Tamara Figlar

      Has there been any guidance related to payouts from the Trust Fund?  I presume that the amounts received are taxable if not specifically for physical injury.

    • #305198
      Lynn Freer

      I’m not aware of any exclusion from income for the fire victims.

    • #305206

      We have spoken to a tax attorney who formally worked for the IRS in litigation and a case can certainly be made under IRC Section 139 (b)(1) and (b)(2) for actual damages if part of a federally declared disaster area.  Of course the specific facts and circumstances must be considered and nothing beyond actual losses/damages can be excluded, like pain and suffering which is always used to pad the award to allow the attorneys to get paid.  We recently filed an amended return on such a basis to exclude the portion of a $200,000 lump sum settlement that was allocated to property loss and expenses incurred per the mediation demand.  This particular situation related to the Thomas Fire.

    • #305301
      Tamara Figlar

      Thank you Lynn and others.  (Sorry for the multiple postings, computer hiccups)

      In reading the below information from the IRS it sounds like the Trust will issue 1099s to both the fire victims (full amount of the settlement) as well as the attorneys (1/3 of the settlement).  Since there is no longer a deduction for 2% Misc. Itemized Deductions for federal purposes the clients will be required to include the full amount in income without the benefit of a deduction.  Am I missing a piece that could help my clients out?

      Treatment of Payments to Attorneys – IRC 6041 and 6045 state that when a payor makes a payment to an attorney for an award of attorney’s fees in a settlement awarding a payment that is includable in the plaintiff income, the payor must report the attorney’s fees on separate information returns with the attorney and the plaintiff as payees. Therefore, Forms 1099-MISC and Forms W-2, as appropriate, must be filed and furnished with the plaintiff and the attorney as payee when attorney’s fees are paid pursuant to a settlement agreement that provides for payments includable in the claimant’s income, even though only one check may be issued for the attorney’s fees.

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