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.
Morey and Associates is an Orange County California CPA Firm with offices in Newport Beach and San Clemente. We service businesses and individuals who seek to lower their tax bills, legally. Call 949-759-5626 and ask for Jerry Morey. Our initial consultation is free.