At Remmel Law Firm we understand how essential it is to find an attorney that is knowledgeable and skilled in dealing with personal injury cases. Many of these personal injury cases reach settlement rather than going to trial, and frequently utilize confidentiality agreements. These types of agreements require certain documentation to avoid headaches with the IRS come tax season.
The Dennis Rodman Example
Photo by OPEN Sports
In 1997, Dennis Rodman was a star forward for the Chicago Bulls, but faced legal trouble after kicking a cameraman in the groin during a game. The cameraman was carried off on a stretcher following the incident and hospitalized for a brief time. He sued Rodman on a personal injury claim, and settled for a confidential amount. However, the IRS came after the cameraman regarding the tax consequences of the settlement.
Many insurance companies and individuals create confidentiality agreements to prevent the plaintiff from speaking publicly about how much money was obtained during settlement, such as with the Rodman case. Yet this creates a huge issue during tax season if correct documentation isn’t available to create a taxable consequence for the IRS.
Confidentiality Clause: Why It’s So Essential
Avoid finding yourself in the same situation as that Bulls cameraman by documenting the amount of money received at the time of settlement. Referred to as a “confidentiality clause,” this documentation of money received is a way to explain to the IRS why you did not claim the money on your tax return, and saves you from tax liability problems. Working with an attorney who is aware of this clause is one of the best ways to avoid dreaded issues with the IRS.