Is Your Monetary Recovery Obtained in a Wrongful Death Case Taxable?

Many injured victims in California have suffered the calamity of losing loved ones. So this could be a grandfather, child, husband or wife due the negligence of another. So naturally, these people are wrongful death victims if they reside in California. Thus, they will take nothing, or they will get forced to sue. Also, this is just to recover a money judgment or settlement. So, they can now continue living. After all, their providing wage earner is in the grave.

Often, awards get received in the case of wrongful death. Sometimes hundreds of thousands or even millions of dollars become due. Amounts will be due for the dead person’s hospital and nursing home expenses. But can the award amounts get taxed? What about punitive damages? Are they too potentially taxable?

Consequently, this is just so they can continue living. Basically, now that their providing wage earner is in the graveyard and six feet under. So if awards get granted hospital and nursing home expenses are just part of the nightmare. But can the award amounts get taxed? What about punitive damages? Are they too potentially taxable?

Caveat – Always Speak to a Tax Attorney Before Committing to a Settlement

At the outset, we are not tax attorneys. We are merely citing the IRS code and dissecting what it says. Other parts of a judgment such as punitive damages, could potentially be taxable. So it is important to consult an experienced attorney. But a tax preparer should also get contacted to settle and structure estate matters.

What Does the Tax Code Say About Wrongful Death Taxation

California law is clear, physical personal injuries and wrongful death awards are excluded from income as far as being taxable. Federal law is in accord. But the caveat is punitive awards.  So, as per Internal Revenue Code Section 104(a)(2), punitive damages are considered to be income that is taxable. However, those costs may get excluded (§ 104(c)) if an award is only received for punitive damages under a state’s statutes for wrongful death. But this is only in effect if the damages occurred on or before September 13, 1995.

The Conference Committee is cited by the CCH Federal Tax Service to report to P.L, 104-188 (1996) H.R. Rep. No. 104-737 concluding that damages received for cases of wrongful death that are non-punitive are excludable income under Section 104 of the Internal Revenue Code.

Descriptive Language of the Wrongful Death Tax Statutes And Codes

The descriptive language under Letter Ruling 200029020 and § 104(c) is supports this decision. (Revenue Rulings 69-8, 54-19, 75-127, 75-126, 83-44).
 Damage amounts that become awarded under a statute of wrongful death may get excluded from the deceased person’s taxable estate. However, general amounts decedent may have been eligible for are a little bit different. During their lifetimes such as a survival action, medical expense refunds may get treated differently. Hence, these could be part of the taxable estate. What is our advice? Get a tax attorney!

As you can see, there is a distinction between the survivors and the estate. Hence, when it comes to the decedent’s pain and suffering, you are probably on the hook with the FTB. Your pain and suffering or medical bills are going to get excluded as taxable. But the decedent’s refunds and their pain and suffering would appear to be taxable.

IRS Circular 230 Disclosure: As under U.S. Laws, readers and viewers of this material are advised that written tax advice, perceived or otherwise, is not “advice.”  (and cannot get used) No taxpayer may rely on this article for avoiding penalties. Also, this includes penalties that may get imposed under the U.S. Internal Revenue Code. Hence, if you wish to learn more about death claims law, contact Michael Ehine. He is a negligent death attorney Los Angeles.

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