Chapter 9 - Damages0

Chapter 9 - Damages0 - Chapter 9 - Damages If you receive a...

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Chapter 9 - Damages If you receive a payment for damages, should you also be taxed on that income?
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Raytheon Production Corporation v Commissioner 144 F.2d 110… Main conclusion of this case is that damages paid for lost profits are includible in gross income (i.e. the damage payment is simply a substitute for the ordinary income the taxpayer would have earned had they not been damaged) Secondary conclusion: even if the damage payment is for lost “goodwill” (i.e. the damages are payment for having driven someone out of business unfairly), it will be includible in gross income as a conversion of the goodwill into cash.
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General Inquiry The taxability of damage payments depends upon why the payment is made. In other words “in lieu of what were the damages awarded” For example, lost profits? Lost ability to work? Lost limbs?
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Origin of the Claim This brings us to a very fundamental tax concept: Origin of the claim This concept drives virtually every conclusion regarding taxability – the question that must be answered is “why is the payment being made” or “what is the origin of the claim”? You must look to the underlying
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This note was uploaded on 09/27/2008 for the course BUS 1000 taught by Professor Professor during the Spring '08 term at Cal Poly.

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Chapter 9 - Damages0 - Chapter 9 - Damages If you receive a...

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