Tax Issues on Court Cases

Sliding Door Injury Results in $21.5M Trial Verdict

Holland AmericanA federal jury trial awarded $21.5 million in damages to a Springfield, Illinois man who was injured by an automatic sliding-glass door on a Holland America Line cruise ship dating back to 2011.

The personal injury damages awarded by the jury were $5M, which are tax free.  The punitive damages were $16.5M which means a windfall for the IRS.  That’s right, the entire $16.5M is taxable and the attorney fee, which is normally contingent for personal injury cases (30-40% contingent fee), will be challenging to deduct.  That means the IRS will get the largest share of the $16.5M and the attorney will get a large cut as well.

Shockingly, it pays to evaluate the tax implications into your legal decisions when the punitive awards could create a huge tax bill.

As you might suspect, Holland America Cruise has appealed the verdict so a settlement for a amount less than $21.5M, but a higher award for personal injuries (higher than $5M) may be a win win solution.