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December 1, 2020

Client Advisor December 2020

Avoiding Tax Surprises on Settlements/Judgments and Forms 1099:

How Are Your Firm and Clients Impacted?

{Editor's note: Richard Warner, CPA and Deborah Dickson, CPA, CFF, MAFF recently published this article in "Orange County Lawyer" magazine, the official publication of the Orange County Bar Association," excerpt below.}

Scenario: You successfully negotiated a settlement for your individual plaintiff client in the amount of $1,000,000 due to claims of emotional distress from non-physical injuries at work. This total includes attorney fees of $400,000. You call it a "win" and are certain that your client will be happy with the $600,000 net result - until you receive a phone call from the client, complaining that her CPA has informed her that she has to pay taxes on the entire $1,000,000 of proceeds, including your $400,000 fees, so her net after tax result is only $200,000! Your client goes away unhappy and you wonder what went wrong.

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