Individuals who have recently been in car accidents, or who are pursuing compensation for damages related to such an incident, often have numerous questions. One common question that many accident victims have is whether their car accident settlements will become a matter of public record. Guidelines concerning the privacy of car accident settlements vary by state. In Tennessee, a car accident settlement is not always a public record. In this state, a car accident case settled outside of the courtroom often does not need to be entered into the public record. On the other hand, when a car accident claim goes to court because the matter requires litigation, then those court proceedings will become public record. If you have been involved in a car accident or have questions about what information will or will not become public record, speak to an experienced car accident attorney at Shepherd and Long, PC. Contact the office at (865) 982-8060 to set up a consultation.
Why Public Records of Car Accident Settlements Matter
Given the level of stress that often results from a car accident, the last thing most accident victims want to deal with is worrying about whether third parties such as their employers, the Internal Revenue Service (IRS), or various creditors will be able to find out that they were involved in an accident, or how much they have received, or anticipate receiving, in compensatory damages. The public record of a personal injury trial will include the amounts of any financial compensation that an accident victim receives. This lack of privacy can be a cause for concern for individuals who have unpaid back taxes or who have a lien on their property placed by the IRS.
Can the IRS Take My Lawsuit Settlement?
When the IRS is owed money, they generally have the power to appropriate an individual’s assets, potentially including settlement fees, to make up the value of the unpaid taxes. If you are a car accident victim who expects or has recently received a settlement in a personal injury case, understanding what you owe to the IRS and other creditors, as well as the circumstances under which your assets may be seized to pay for debts.
Because the IRS has the ability to file tax liens against anyone who has not paid their federal taxes, “Can the IRS take my lawsuit settlement?” is a common question among car accident victims who have recently won their personal injury cases. Liens issued by the IRS are designed to help ensure that the federal government is compensated for unpaid taxes. In general, individuals cannot control how the IRS exacts compensation for their unpaid taxes, and IRS officials may have the authority to reach into lawsuit settlements.
When Can the IRS Take Money From Car Accident Settlements?
If an individual owes back taxes, their lawsuit settlement might be available for the IRS to take as compensation for the unpaid debt to the government. This asset seizure may be more likely to occur if the IRS has a lien on the individual’s property before the settlement occurs. Once the settlement funds are deposited into the taxpayer’s bank account, the IRS may then take a part of the total settlement in order to settle the unpaid taxes.
If the IRS does not have a lien on an individual’s property, but has a claim against a portion of their compensation because of unpaid taxes, they may pursue portions of the settlement that are not allocated towards reimbursement for property loss or personal injury. While settlement figures intended to cover financial damages resulting from property loss or physical injury are in many situations exempt from seizure, the IRS can generally take portions of a lawsuit settlement that account for lost income or wages, because those settlement funds are designed to replace the individual’s lost income and assets. The number the IRS seeks in such cases is typically calculated based on the individual’s tax return, which serves as proof of earnings and income.
Do I Have To Report My Personal Injury Settlement to the IRS?
The IRS may seize funds awarded in a personal injury lawsuit if the victim has unpaid taxes, but, they generally cannot assess new taxes on portions of a personal injury settlement intended to cover injuries, sickness, emotional distress, and loss-in-property value. In many cases, the portions of personal injury settlements intended to compensate individuals for their medical bills to treat injury and pain and suffering resulting from accident-related injuries are not required to be reported as income and are not considered taxable by the IRS. This means that they will not take a portion of your settlement funds for any tax purposes specific to those portions of the settlement. A personal injury attorney with Shepherd & Long, PC experienced in car accident settlements may be able to advise you which portions of your settlement may be subject to taxes.
Economic Damages Are Usually Not Taxable
Your economic damages that you receive for the purpose of being compensated for lost funds as a result of your car accident injuries are also not taxable. The government assumes that the funds that you receive both economic and non-economic as a result of your car accident injury are for the purpose of recovering from a loss equal to that money you received. Therefore, this money is not considered taxable income.
Emotional Distress Allocations and Punitive Damages May Be Taxable
On the other hand, if a car accident settlement includes funds awarded as compensation for pain and suffering or emotional distress unrelated to the car accident injury, the IRS may treat those portions of the settlement as reportable income and therefore subject to tax assessment. Similarly, portions of personal injury settlements that include punitive damages may also be subject to taxation, even if the total value of the settlement is not. The IRS maintains a list of regulations defining which portions of a settlement can be taken for tax purposes, what needs to be reported, and under what circumstances.
When Car Accident Settlements Must Be Reported
There are some exceptions that apply to the general rule against taxing settlements awarded in personal injury lawsuits. This includes punitive damages that are awarded when the defendant’s actions are considered egregious. In these cases, this specific compensation is not designed to place the victim into the state they were in prior to the accident but rather to punish the defendant. Therefore, this portion of the compensation may be taxable, and a car accident victim may have an obligation to report these damages to the IRS irrespective of whether the amount of their settlement meets the criteria for a public record as defined by Tennessee State Courts. Consider speaking with an experienced attorney about your specific case to achieve a better understanding of what compensation you may receive and what portion of it must be reported to the IRS.
East Tennessee Vehicle Accident Attorneys
If you have been involved in a car accident and are unsure about how to seek compensation for the damages you have incurred as a result, or if you need to report settlement income, consider reaching out to an experienced car accident litigation attorney. The experienced car accident attorneys with Shepherd and Long, PC, may be able to help you navigate your car accident case and determine how to report your settlement to the IRS. To schedule your no-cost initial consultation, contact the East Tennessee office at (865) 982-8060.