Litigation & Settlements strategies

10 plays in this category. Each one covers the mechanics, who it fits, and the estimated impact — then generates a deep dive against your own numbers.

• Litigation & Settlements

  §104(a)(2) Exclusion — Personal Physical Injury Settlements Are Tax-Free

  Damages 'on account of' personal physical injury or physical sickness are 100% excluded from gross income.

  22–37% federal + state tax on entire recovery
• Litigation & Settlements

  Structured Settlement (§130) — Tax-Free Guaranteed Income for Life

  Structured PI settlement pays tax-free installments for life via a qualified assignment — better than lump-sum + investing.

  $500K–$2M+ over lifetime vs lump-sum + taxable investing
• Litigation & Settlements

  Qualified Settlement Fund (§468B) — Time-Shift Settlement Income

  Depositing settlement into a §468B QSF lets plaintiffs delay constructive receipt while negotiating allocations and structures.

  Preserves millions in tax + planning optionality
• Litigation & Settlements

  Attorney Fee Structured Settlement — Contingent-Fee Tax Deferral

  Plaintiff attorneys can structure their contingent fee via §130 QAssignment — deferring tax to payment years.

  20–37% tax deferral × decade = $500K+ NPV
• Litigation & Settlements

  Plaintiff Recovery Trust — Deduct Contingent Attorney Fees Above-Line

  For taxable settlements, use a Plaintiff Recovery Trust or origin-of-claim allocation to avoid attorney fees being taxed to plaintiff.

  Avoid tax on attorney fee — often $100K–$1M+
• Litigation & Settlements

  Origin-of-Claim Doctrine — Route Emotional Distress to §104(a)(2)

  If emotional distress ORIGINATES from a physical injury, entire settlement is tax-free — even the emotional portion.

  22–37% tax on emotional-distress portion
• Litigation & Settlements

  IRS/SEC/CFTC Whistleblower Awards — Above-Line Fee Deduction

  IRC §62(a)(21) allows above-line deduction for attorney fees on federal whistleblower recoveries — full net-of-fees tax.

  Effective 30–40% reduction in tax on award
• Litigation & Settlements

  Medicare Set-Aside — Preserve Medicare Eligibility Post-Settlement

  MSA earmarks portion of PI settlement for future Medicare-covered care so plaintiff doesn't lose future Medicare eligibility.

  Preserves $100K–$millions in future Medicare benefits
• Litigation & Settlements

  §1341 Claim of Right — Recompute Prior-Year Tax on Repayment

  Forced to repay income taxed in a prior year? §1341 lets you deduct now OR recompute prior year — take the bigger benefit.

  5–15 percentage-point rate arbitrage on repayment
• Litigation & Settlements

  Punitive Damages Tax Planning — Timing, Entities, and Deferral

  Punitive damages are ALWAYS taxable — plan for timing, install-payment, and entity ownership to soften the blow.

  $50K–$500K+ via bracket smoothing + offsets