Your client just settled—or better yet, won a judgment.  What are the tax consequences?  Admittedly, the tax impact of resolving a dispute is often little more than an afterthought.  But a client’s net after-tax recovery can vary drastically depending on the applicable tax rules.  An attorney armed with an understanding of the relevant tax issues has an advantage over opposing counsel who lacks such insight.

Basic Tax Principles

Judgments and settlements are, in theory, taxed in the same manner.  It is, therefore, generally irrelevant—from a tax perspective, at least—whether a dispute is resolved by a judgment or settlement.

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