Tax,
Insurance
May 3, 2023
Taxing insurance bad faith recoveries
It seems reasonable to believe that there are an increasing number of bad faith settlements and judgments. Not all involve good arguments for exclusion, and sometimes the way to get to that position can require some creativity.
Robert W. Wood
Managing Partner
Wood LLP
333 Sacramento St
San Francisco , California 94111-3601
Phone: (415) 834-0113
Fax: (415) 789-4540
Email: wood@WoodLLP.com
Univ of Chicago Law School
Wood is a tax lawyer at Wood LLP, and often advises lawyers and litigants about tax issues.
Insurance bad faith litigation recoveries can be significant, in some cases dwarfing the underlying dispute. By definition, they arise out of an underlying dispute or accident. That duality can make the tax treatment of insurance bad faith recoveries especially tricky. However, it can also invite some potential tax planning. If the underlying incident was a physical injury accident, the compensatory damages should presumably be tax free.
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