1099-MISC and attorneys fees

[Charley in Ohio]

I have a client that received a settlement in 2008 that includes attorneys fees paid. The amount reported on Box 3 is flowing correctly to Line 10 on the 1040. However, I am not sure how to get the amount in Box 14a to flow anywhere. I enter the full amount in Box 14 and the taxable about in 14a. When I try to pull a form on the drop down menu, I don't get anything. If I have an amount in 14a and no drop down, I get a red warning when running the check return. I've looked around and cannot find out to get something to populate in the drop down box for line 14b on the 1099-MISC worksheet. I am checking with the client to make sure the attorneys fees are taxable (since I don't know the circumstances of the settlement), but was trying to figure out how to report it in any event. Any suggestions on what I'm missing??

Thanks for any help!

Charley

[ed_accountant]

Gross proceeds including the attorney portion from settlement are taxable as misc income. Attorney fees are reported on Schedule A as a misc deduction subject to 2% limitation.

[RoyDaleOne]

What was the cause of action for the settlement?

I ask because not all settlements are treated equal.

[RoyDaleOne]

Litigation proceeds and the related legal fees generally fall into four categories:

1. Personal injury claims where the proceeds are excluded from gross income under IRC section 104(a)(2).

2. Discrimination claims that qualify for the new deduction for AGI under section 62(a)(20).

3. Claims where only the net proceeds. Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security.

Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). of the litigation are reportable as gross income.

4. Claims that remain fully includible in gross income, but where the related legal fees and court costs are not eligible for the above-the-line deduction outlined in section 62(a)(20).

[Charley in Ohio]

The settlement was a class action that the taxpayer says is a result of how long he was at the employer (like discrimination). I haven't read sec. 62(a)(20), but I'll take a look and see. Thanks!!!

Charley

[lbbwest]

The settlement was a class action that the taxpayer says is a result of how long he was at the employer (like discrimination). I haven't read sec. 62(a)(20), but I'll take a look and see. Thanks!!!

Charley

Many times (because the law keeps getting more convoluted) the issue of taxability is addressed directly in the settlement, especially in class actions suits. Have you read the settlement? lbb