Question

i'm supposed to write a tax memo based on this prompt and i don't even know where to begin:

You are interviewing a client before preparing his tax return. He indicates that he did not list as income $96,000 received as a recovery for false imprisonment. What should you do with respect to this significant recovery?

Partial list of aids:

CCA 200809001

Daniel and Brenda Stadnyk, T.C. Memo 2008-289

Rev. Rul. 207-14, 2007-1 C.B 747

ss104

Answer 1

When the client did not list as income $96,000 received as a recovery for false imprisonment, we would not include the money received as income based on the section 104 - Compensation for injuries and sickness, of Internal Revenue Code, where any payout as compensation to be considered tax free because of the physical sufferings.

Moreover, according to Section 139 (wrongful incarceration) of Internal Revenue Code and Protecting Americans from Tax Hikes Act,such monetary compensation has not been taken as income as the client had suffered physical injuries and sickness while under incarceration.

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