Will The IRS Really Tax Public Humiliation

United Airlines
Photo Credit: © Raimond Spekking / CC BY-SA 4.0 (via Wikimedia Commons)

 

If you didn’t hear about the doctor who was pulled off a United Airlines airplane and made to give up the seat he had paid for, you must live under a rock. The story was all over the news for days after the event. It was one of the biggest public relations scandals of all times. Shocking in its callousness and brutality toward a paying customer.

Apparently United Airlines has reached a settlement with the good doctor who lost his seat and suffered physical, not to mention emotional injuries.

As a tax attorney I can only hope he doesn’t have to pay taxes on his settlement. However I know that the IRS tries its best to grab as much as possible by making a distinction between emotional and physical damages.

According to forbes.com “The settlement figure is confidential, but the speed of the settlement could mean it was sizable.”

It used to be that when there was any kind of injury resulting from an accident in which there was a monetary settlement, all “personal” damages were tax-free.

That meant that emotional distress, defamation, etc… produced tax-free recoveries. That all changed in 1996. Now, according to tax law your injury must be physical. It’s true and forbes.com points out that, “Taxpayers routinely argue in U.S. Tax Court that their damages are sufficiently physical to be tax-free; the IRS usually wins these cases, but not always. Dr. Dao’s case seems pretty clear, considering how badly he was roughed up. But often, the IRS draws a line between some physical injuries and some that are merely emotional.”

I guess we’ll just have to wait and see if Dr. Dao receives a Form 1099 next January. If he does, that means the IRS wants to profit from the doctor’s publicly humiliating and taxing experience.