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Clint Eastwood wins suit over fake advertising, IRS also wins

Clint Eastwood is 92 years old, but he’s still fierce. He won his second lawsuit on online marketers who used his image without his permission. Garrapata, the agency that holds the rights to Eastwood’s name and image other than in movies, was his fellow plaintiff. Garrapata and Eastwood were awarded $2 million in damages. Norok Innovation, a California-based marketing firm, was the victim of the suit. It used Eastwood’s celebrity status as a means to drive traffic to a website that sells CBD products online. The articles and manipulated search results gave the impression that Eastwood actually endorsed these products. Garrapata and Eastwood won a similar $6.1million dollar recovery in 2021 against Mediatonas UAB (a Lithuanian company). The suit was also based upon false articles that suggested the actor had endorsed CBD products.

LOS ANGELES (CA) – DECEMBER 10, 2010: Clint Eastwood arrives at Warner Bros. Pictures’…

Is this the taxable income for damages such as these? They are. Yet, many plaintiffs who win a lawsuit end up having to pay taxes. Many plaintiffs don’t realize this until tax season approaches in the next year, when IRS Forms 10099 arrive in their mailbox. Some plaintiffs may be taxed on their attorney fees, even though their lawyer took 40% of the settlement amount. Higher taxes have been imposed on litigation settlements from 2018. This bizarre issue of attorney fees does not normally impact compensation cases for physical injuries. This should also not affect plaintiffs who sue their employers. A deduction is available that allows plaintiffs to use contingent-fee lawyers to offset their legal costs in employment lawsuits. Even if you are not in these two situations, there are ways that you can deduct legal fees under the new law.

According to the IRS, taxes on a settlement or verdict in litigation are determined by the source of the claim. In Eastwood’s instance, this means that his lawsuit settlement is ordinary income. He would not have received royalty or license fees if he was to receive ordinary income. If he wins a lawsuit against these companies, this too will be considered ordinary income. But Eastwood could claim that his image rights were capital gain property. If so, capital gain rates should be applied. It would be more advantageous to pay 23.8% than 37%. A suit over intellectual property can sometimes result in capital gain. The same can be said for a case regarding a landlord tenant dispute where the tenant is evicted from a lease. Capital gain could also be possible from a suit regarding the conversion or damage to property. A suit regarding construction defects, property damage or diminution of value could also be considered capital gain. What about a lawsuit against an investment advisor for losing your money? Capital gain or basis recovery are also possible. It is possible to get your money back without paying any tax.

The IRS can and will push back as you might expect. However, these examples could be legitimate opportunities for capital gains rather than regular income. Eastwood could legitimately claim that he earns business income using his name and likeness. Therefore, he should be allowed to deduct his legal costs. However, 2018 is not for everyone and taxation of legal fees is complicated. This applies even if the defendant has already paid his contingent fee. Your lawyer gets $40,000. Let’s say you settle a lawsuit for intentional infliction or emotional distress against a neighbor. It might seem that you would have $60,000 in income. According to Commissioner V. Banks which stated that 100% must be considered gross income in order for plaintiffs to have income of $100,000

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They can then try to deduct fees but this is not always possible. There are many exceptions to the rules, so it is important to be aware of how settlement payments are taxed. The IRS taxes most settlements in lawsuits. It is better for the plaintiff and defendant to agree upon tax treatment. These agreements don’t have binding effect on the IRS and courts in tax disputes later, but are often not ignored by the IRS. The IRS rules regarding legal settlements and legal costs state that any recovery for physical injuries or sickness is exempt from tax. Your injury must be “physical”, and emotional distress cannot suffice. Taxes can be applied to emotional distress symptoms such as headaches or stomachaches. The rules could turn into a chicken or egg issue, with many judgement calls. In an employment dispute, you may be awarded $50,000 more if your employer gives you an ulcer. Although many plaintiffs are aggressive in their tax returns, it can prove to be a losing battle if the IRS Form 1099 is issued by the defendant for the whole settlement.

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