Just prior to the Thanksgiving Holiday I was deluged with emails and notices, most of them with the heading that “The IRS has declared wrongful imprisonment cases to be tax free!”, or words to the effect.
For those of us who like to actually read IRS technical amendment's and clarifications, as well as solicit the advice of those who are smarter then we are on tax issues, it quickly became clear that many of the structured settlement and lawyers who were trumpeting this IRS triumph were a bit pre-mature in their blanket pronouncements.
The fact is this ruling tells us almost nothing new, simply confirming that which we already are aware of which is that physical injury and sickness caused by wrongful imprisonment is NOT taxable, but that the mere loss of civil rights from wrongful imprisonment is still taxable.
Check out this video from LBN’s tax expert, Attorney Robert Wood of the firm Wood & Porter as well as his companion piece in Forbes of last week which I attached via link here.
I know we all want to be able to make wrongful imprisonment cases tax free, but declaring this ruling as proof is not only incorrect it is irresponsible. The real fix would be if the NSSTA and the trial lawyer groups such as Public Justice would go lobby Congress to correct legislatively this obvious wrong.