I have a client who filed a wrongful termination lawsuit against his employer in 2004.
In 2005 the employer settled the lawsuit out of court with a lumpsum payment of $20,000 which was to be paid to the employee in the form of non wages Other Income 1099-Misc (Not designated Non Employee Compensation on the 1099-MISC).
The recipient of the settlement was paid $11,000 and his attorney was paid $9,000. This was written into the settlement agreement by the recipient's attorney. However the settlement agreent only stated that each was to be sent a 1099-MISC for Other Income. The agreement was silent as to the amount of the 1099-MISC, and client has no way of ascertaining if the attorney received a 1099-MISC or not.
On the 1040 there is an Other Income line21 which could easily handle the $20,000, but the attorney took $9,000 and I can't get both of these transactions on Line 21.
The IRS rejected the clients tax return showing only $11,000 on line 21 stating that he has $20,000 in income.
I suppose I could put this on a Schedule C with a legal expense of $9,000. However, I don't think this award should trigger self employment taxes, this is not self employment, it is an award specifically designated non wage compensation Other Income.
should I put $20,000 on Line 21 and list a Schedule C expense of $9,000 which woudl then flow to line 12 as a Negative $9,000?
Thanks for any advice on this one.
Marc
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