Are awards received in a wrongful death case taxable?

October 8, 2004

Subject:  Lawsuit award
Date:  Mon, 27 Sep 2004
From:  Jeff

Are awards received in a wrongful death case taxable? My wife is the only sibling from her dad's estate and we have several hundred thousand dollars in bills from his hospital and nursing home we might be liable for. We reside in Illinois.

Answer

Date:  Fri, 08 Oct 2004

Hello Jeff,

My condolences for your loss. I will only discuss the federal tax rules for your issue. You should be working with an attorney and a tax return preparer in settling your father-in-law's estate.

Amounts received for physical personal injuries (including wrongful death) are excludable from taxable income. Punitive damages are taxable income. (Internal Revenue Code Section 104(a)(2).) However, if only punitive damages may be awarded under a state's wrongful death statutes, which were in effect on or before September 13, 1995, the damages are excludable (§ 104(c)).

The CCH Federal Tax Service cites the Conference Committee Report to P.L, 104-188 (1996) H,R. Rep. No. 104-737 in concluding that nonpunitive damages received for wrongful death are excluded from income under Internal Revenue Code Section 104. The clarifying language under § 104(c) and Letter Ruling 200029020 also support this conclusion.

Damages received under a wrongful death statute are excludable from the taxable estate of the deceased person, but amounts that person would have been entitled to during his or her lifetime for pain and suffering or as reimbursement for medical expenses, etc. are includable in the taxable estate. (Revenue Rulings 69-8, 54-19, 75-127, 75-126, 83-44.)

Good luck!
Mike Gray

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