Author Topic: FCRA settlement: Defendant issued a 1099 for full settlement, Lawyer also 1099  (Read 435 times)

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m2352

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I received a settlement for FCRA lawsuit. Defendant issued a 1099 for full settlement amount, lawyer issued another 1099 for award minus legal fees. How do I file / deduct this?

1099-Misc #1 - $6500 "other income" from Defendant

1099-Misc #2 - $1000 from lawyer "other income" for my portion of reward.

Accounting from Lawyer:

$6500 - Gross settlement amount (matches 1099 #1)
-$501.35 - Filing and service fees
5998.65 - Net Settlement amount
-$4998.65 - Lawyer fees
$1000 - my reward (matches 1099 #2)


Confused how to add this in turbotax, since I have two 1099s but there is overlap so adding both overtaxes me. Also, can I deduct this? if so, what portion?

Also, this FCRA claim was due to a mortgage on a rental property that went through CH13 severance. Would i put an deductions/costs under the rental property? or since the FCRA affects me as a person (my credit) and not the property, would it be my personal deduction?

kevinmanheim

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In which box is the amount placed in on the 1099? This is important. It should be in Box 7.

You need to claim the full amount as income, and deduct the attorney's share as a legal expense.

The business was legally only entitled to issue one 1099 for the payment. You need to get in touch with them and have them issue you a corrected one for $0, or have them issue the law firm a corrected one for $0. They can't double dip on the deduction.

11181986

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The Company didn't issue two 1099's.

fisthardcheese

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  • They forced arbitration into your contract. Use it
The attorney has no business issuing a 1099 as they were not the ones submitting payment to you.

I would contact the attorney, notify them you recieved a 1099 for the full amount from the company and ask them to retract their 1099.
11 Arb Settlements (9 AAA, 2 JAMS)
3 JDB Suits Dismissed With Prejudice (2 pro-se, 1 consumer atty)
3 TCPA Settlements (2 pro-se, 1 consumer atty)
2 FCRA Settlements (consumer atty)
1 FDCPA Settlement (w consumer atty)
1 Small Claims Win (pro-se; Landlord/state consumer law violations)
1 State UDAP Settlement (ITS)
1 Federal PTC Settlement (before hearing; pro-se)

m2352

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Box 3 other income on both 1099. Not sure what you mean by "the business".  The defendant and the lawyer both issued 1 1099 each.

m2352

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The attorney did cut me a check though from a trust account. I did not receive direct payment from the defendant.

Bobby12

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In which box is the amount placed in on the 1099? This is important. It should be in Box 7.

You need to claim the full amount as income, and deduct the attorney's share as a legal expense.

The business was legally only entitled to issue one 1099 for the payment. You need to get in touch with them and have them issue you a corrected one for $0, or have them issue the law firm a corrected one for $0. They can't double dip on the deduction.

The OP states that his 1099 was listed as "other income". On a 1099 that is box 3. Box 7 is non-employee compensation. What's the difference? I received three 1099's from settlements this year: two of them list the amount in Box 3 (Other income) and one lists it in Box 7 (non-employee compensation). Is this a problem that needs corrected?

fisthardcheese

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  • They forced arbitration into your contract. Use it
The attorney did cut me a check though from a trust account. I did not receive direct payment from the defendant.

Your payment came from the defendant. The attorney only held it and passed it on to you minus his fees. He has no right to issue a 1099 as he did not issue a payment to you.

The OP states that his 1099 was listed as "other income". On a 1099 that is box 3. Box 7 is non-employee compensation. What's the difference? I received three 1099's from settlements this year: two of them list the amount in Box 3 (Other income) and one lists it in Box 7 (non-employee compensation). Is this a problem that needs corrected?


Box 7 is the correct one. Last yearvI had a 1099 issued with amount placed in box 3 and my tax software was forcing me to list a home business for this payment.  I called the attorney I settled with and had the company issue a corrected 1099 over nighted to me a few days later
11 Arb Settlements (9 AAA, 2 JAMS)
3 JDB Suits Dismissed With Prejudice (2 pro-se, 1 consumer atty)
3 TCPA Settlements (2 pro-se, 1 consumer atty)
2 FCRA Settlements (consumer atty)
1 FDCPA Settlement (w consumer atty)
1 Small Claims Win (pro-se; Landlord/state consumer law violations)
1 State UDAP Settlement (ITS)
1 Federal PTC Settlement (before hearing; pro-se)

11181986

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Pretty sure this is not a big deal at all, taxes are an art not a science. It's pretty easy to document this and explain what happened and pay the appropriate tax. I know it's nice to use TurboTax, but if your income is pretty straight forward outside of this, spend the $250.00 on a CPA. At minimum, if he or she messes it up, you have an action for professional malpractice.  If you mess it up yourself, it's squarely on you.

m2352

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well this is frustrating, i talked to a tax attorney and he is saying the exact opposite. The defendant should NOT have issued me a 1099 and only the lawyer.

So the exact opposite of what fisthardcheese said.... 1214

Time for a 3rd opinion.

kevinmanheim

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Box 3 vs box 7 is a big deal.

If the amount is in box 7, you will pay self-employment tax PLUS normal taxes on the amount.

Lawsuit settlements should always be in box 3. Ask the IRS.

Many companies put the amount in box 7 as a parting shot to increase your tax liability on the payment.

Ask the business to issue you a revised 1099 with the amount in box 3.


Reporting of Damage Awards on Forms 1099-MISC

IRC 6041 and 6051 and Treasury Regulations 1.6041-1(f) and 1.6041-2 are the operative provisions with respect to the reporting requirements for the client receiving the settlement or award.

Box 3 of Form 1099-MISC is used to report other income that is not reportable in one of the other boxes on the form. Generally, all punitive damages (even if they relate to physical injury or physical sickness), any damages for non-physical injuries or sickness, liquidated damages received under the Age Discrimination in Employment Act of 1967, and any other taxable damages are required to be reported in Box 3. Generally, all compensatory damages for non-physical injuries or sickness (for example, emotional distress) arising from employment discrimination or defamation are reportable in Box 3. However, if a taxpayer receives an award of back pay that constitutes wages, it generally would be reportable on Form W-2, not Form 1099-MISC.

https://www.irs.gov/businesses/small-businesses-self-employed/lawsuits-awards-and-settlements-audit-techniques-guide

Box 7 is where businesses are supposed to place non-employee compensation. Those amounts are subject to self-employment taxes.

fisthardcheese

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  • They forced arbitration into your contract. Use it
Kevinmahneim is right. I inversed the numbers on my post above. Box 3 is the correct one.
11 Arb Settlements (9 AAA, 2 JAMS)
3 JDB Suits Dismissed With Prejudice (2 pro-se, 1 consumer atty)
3 TCPA Settlements (2 pro-se, 1 consumer atty)
2 FCRA Settlements (consumer atty)
1 FDCPA Settlement (w consumer atty)
1 Small Claims Win (pro-se; Landlord/state consumer law violations)
1 State UDAP Settlement (ITS)
1 Federal PTC Settlement (before hearing; pro-se)