During the course of civil litigation, the victim may be able to get additional damages based on the adverse tax consequences that the plaintiff says were caused by the defendant's actions. Robert Wood, tax attorney with Wood, LLP in San Francisco tells people that this isn't really about taxes but really a question about what kinds of damages are available in a civil case.
Wood says a good example is in employment cases. If a person gets unfairly fired, they can go through years of litigation to get that money back. For example, he says, a person going through 5 years of litigation who had made $100,000 a year and wins their case, would get the $500,000 they're owed back. Wood says that the tax rules are very clear that when you get that money back all at once, it's considered income in the year you get it.
According to Wood, it is very common for plaintiffs to argue for the money that they're owed, that they're entitled to interest as well as the adverse tax impact of getting it all in one year as opposed to over the 5 years they were supposed to be paid.
Wood adds that these damages are very hard to get because as opposed to tax attorneys presenting it to the court, it is the trial lawyer as part of the case. He advises people to plan ahead and early on and that tax lawyers can be contacted as the case is progressing for advice.
Attorney Robert Wood, of Wood, LLP in San Francisco is a featured commentator with The Tax Law Channel, part of The Legal Broadcast Network. More information on the article written by Wood on tax based damages can be found here.