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No taxes to be paid in United Airlines settlement

On Behalf of | May 11, 2017 | Corporate Taxes |

Most people believed that the reported lawsuit that Dr. David Dao was poised to file against United Airlines and other related parties would never see a day in court. Those people were proven right when the parties announced a settlement last week.

The terms were not disclosed, and since it was a confidential settlement, no additional financial terms will be made public. However, Dr. Dao’s attorneys noted that any monetary award will be tax free.  This largely because IRS rules allow financial awards obtained due to physical injuries are treated as tax free income. 

Dr. Dao suffered a broken nose, lost two teeth and suffered a concussion during his encounter with law enforcement officers as they forcibly removed him from a United Airlines flight. The video of the altercation went viral and led to international uproar over how he was treated.

Dr. Dao won’t be the only one reaping tax benefits from the settlement. United may also deem any money spent on the settlement as a business expense. IRS rules indicate that money spent on trying to avoid (or settle) a legal matter fall under the umbrella of “reasonable business expenses.” This would be different from United spending money on campaigns to repair to its image.

The story exemplifies the need for personal injury and/or employment law plaintiffs to have an experienced tax attorney review potential settlement deals before signing them. The structure of the deal could merit a great deal of tax savings that increases the deal’s overall value.

The preceding is for informational purposes only.  It is not legal advice. 

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