Asiana 777 Crash at SFO Could Cause Tax Implications

July 11, 2013 — Leave a comment

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After last Friday’s Asiana 777 flight crash at San Francisco International Airport (SFO), tallies show that 2 passengers died while another 182 suffered injuries varying from scrapes to paralysis. Moreover, the remaining 123 travelers remained unscathed.

Airplane crash expert, Arthur Wolk, estimates that in addition to those who were physically hurt, those who escaped without physical injury could see seven-figure settlements due to Post Traumatic Stress Disorder (PTSD).

“Settlements for survivors of airline crashes can be expected even without physical injuries. People respond differently to such events, and some handle it better than others. Yet it is not a stretch to suggest that some survivors may suffer from PTSD,” noted Mr. Wolk.

Some passengers will receive settlements because of physical injuries and others due to non-physical injuries and this will be the deciding factor in whether the IRS will get a cut of the settlement.

“Generally, everything is income, whether a payment is for services, selling property, settling a lawsuit, etc.” The one exception to this ‘all income’ rule is lawsuit recoveries dealing with physical injuries. So damages such as broken bones from an accident are tax-free.

The line on tax exemption gets a little blurrier when the IRS is dealing with emotional injury settlements. Headaches, a physical symptom associated with emotional distress, for example, are not tax-free. Both Congress and the IRS have yet to define what a physical injury is so tax disputes in the matter are fairly common.

In the instance of Parkinson v. Commissioner, the U.S. Tax Court “overruled an IRS decision to tax a $350,000 settlement a man received after suing his ex-employer for intentional infliction of emotional distress.”

So the question at hand then becomes whether the 123 unhurt passengers, who may suffer from PTSD and recover, will get their settlements taxed. Unfortunately, PTSD and tax settlement implications are still unclear.

U.S. Taxpayer Advocate, Nina Olson, has advocated for treating PTSD as physical sickness, meaning that settlements for it would be tax-free.

“Medical data suggests PTSD is not a mere mental state. In fact, it is a physical sickness involving measurable changes in the physical make-up of the brain and nervous system,” states Olson.

Lawsuits are certain with this airplane crash but due to the ambiguity in the law, settlements will differ. Noting that lawyer fees in a settlement case are most likely to be costly, plaintiffs should look to some of these facts to save tax money on the settlement if possible.

JDKatz: Attorney's At Law

JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.

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