Land & Lease: Schorr Law's Los Angeles Real Estate Attorney Blog

There are few things more frustrating as a trial attorney in Los Angeles than preparing for trial without the benefit of the opposing party’s trial witness list, trial exhibit list and other trial documents.  Los Angeles County Superior Court Local Rule 3.25((h)(1) provides that at least five days prior to the final status conference, counsel must serve and file lists of pre-marked exhibits to be used at trial, jury instruction requests, trial witness lists, and a proposed short statement of the case to be read to the jury explaining the case.  In my practice, I always make sure to file these documents in a timely so as not to risk any exclusion orders.  Unfortunately, opposing counsel often wait until the last possible moment, including up until the final status conference itself to file their documents.

In the past few weeks, opposing counsel refused to provide his client’s trial documents.  As a result, I sought and obtained an evidentiary order precluding the defendant from introducing any witness or using any exhibits at trial.  This was a powerful order.  Shortly after receiving the court’s tentative ruling in my client’s favor on this issue, the defendant stipulated to liability in the case.  The court, in granting my client’s motion, relied on California Rules of Court rule 3.1548(e) to preclude defendant’s evidence and witnesses.

Los Angeles County Superior Court rule 3.25(h)(1) and California Rules of Court rule 3.1548(e) are powerful tools for trial attorneys in Los Angeles.  You can quickly turn opposing party’s game playing into their downfall.

by Zachary Schorr, zschorr@schorr-law.com, www.schorr-law.com, 310-954-1877.

Whether opposing counsel is not prepared or simply withholding

If you are the plaintiff in a lawsuit and receive a settlement offer, it may be helpful to consider the tax implications of accepting it.  What follows is a general overview of the area.

The first rule to remember is that, from the IRS’ perspective, all income is taxable unless it is exempted by the Internal Revenue Code.  This means the plaintiff should expect to pay taxes on the settlement.

The tax treatment will depend on many factors, but especially on the type of legal claims and damages involved.  Generally speaking, a payment to the plaintiff to compensate for physical injuries or sickness is not taxable.  On the other hand, monies which the plaintiff receives for lost profits, injury to professional reputation, or injury to other economic interests are generally taxable.  One exception is when the plaintiff simply receives a return of monies he or she previously paid to the defendant, such as the return of a premium or deposit.  This type of “restitution” is usually not taxable.  On the other hand, if interest were paid along with the returned funds, the interest would be taxable.

Payments for property damages are a bit more complicated.  The starting point is the owner’s basis in the property.  If the payments received for the property damage are greater than the owner’s  basis in the property, the excess is treated as a gain and may be taxable depending on such factors as whether the property was completely destroyed and was the owner’s primary residence.  Even if there is a gain, in some cases, the owner may be able to defer reporting by using the excess amount to purchase a replacement residence within a specified period of time.  In addition, if the owner does not spend all of the monies received on repairing the property, then there may also be a gain.  It is essential to consult with a tax advisor in connection with property damages which can be complicated.

Other types of damages include payments for attorney fees, which are often taxable.  The portion of the settlement designated for a contingency lawyer’s fees will count as the plaintiff’s income ordinarily.  For example, if the defendant gives a settlement check of $100,000, and $50,000 is for attorney fees, and $50,000 is for taxable damages, the plaintiff is generally treated as receiving the entire $100,000 for tax purposes.

Payments for punitive damages are also taxable.  This is true regardless of whether the underlying injury was physical or purely an economic loss.

Interest is taxable whether it is pre-judgment or post-judgment interest.

Often parties try to avoid taxation by creatively naming the settlement payments one way or another.  The IRS will scrutinize the Complaint and Settlement Agreement in any audit.  For example, in a case where the plaintiff asserts a minor physical injury and major economic losses, if the settlement agreement provides for a large payout for the physical loss, and only a small amount for the economic loss, this could trigger examination by the IRS – and lead to a reallocation of the settlement to reflect the actual facts and circumstances, along with penalties.

Finally, there are reporting obligations.  The defendant will usually report the payments to the IRS and will do so using Form 1099-MISC or, in the case of wages, using Form W-2.

By Priya Bhatt

Nothing presented on this website should be construed as tax advice or as legal advice.  All content is for general informational purposes only.  Using this site is not a substitute for consulting with a tax professional or an attorney.  Readers are advised to consult legal counsel and tax counsel for their specific situations and circumstances.  Readers should not take, or refrain from taking, any action based upon materials in this website.  The content of this website contains general information and may not reflect current legal developments, verdicts or settlements. 

TO ENSURE COMPLIANCE WITH INTERNAL REVENUE SERVICE CIRCULAR 230, WE INFORM YOU THAT ANY U.S. FEDERAL TAX ADVICE CONTAINED IN THIS WEB SITE IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, FOR THE PURPOSE OF (1) AVOIDING PENALTIES UNDER THE INTERNAL REVENUE CODE OR (2) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY TAX-RELATED MATTER[S] ADDRESSED HEREIN.