In Uncategorized on 05/12/2017 at 14:08

Sexual harassment cases have been much in the news. High-profile individuals in the broadcast media, whether entertainers, or others before the cameras or behind them, have been mulcted in big ticket damages.

Chanelle S. Coleman, Docket No. 11752-16, filed 5/12/17, received a settlement in such a case, which apparently made no headlines but points a useful lesson both to the headliners and those whose cases never reach the public eye. And their legal advisers would do well to read and heed.

Judge Kerrigan deals with this case in an off-the-bencher.

Half of what Chanelle got was designated as separation pay and future wages. The other half was designated in the confidential settlement agreement with her former employer as “compensatory damages, including emotional distress.” Transcript, at p. 4.

And Chanelle got a Form 1099-MISC for that half, but didn’t include it on her 1040.

Judge Kerrigan: “Damages (other than punitive damages) received on account of personal injuries or physical sickness may generally be excluded from income. Sec. 104(a)(2). For damages to be excluded under this provision, the underlying cause of action must be based in tort or tort-type rights, and the proceeds must be damages received on account of personal injury or sickness When damages are received pursuant to a settlement agreement, the nature of the claim that was the actual basis for settlement controls whether those damages are excludable pursuant to section 104(a) (2).” Transcript, at p. 5 (Citations omitted).

I’ve blogged enough of this sort of case for the rest to come as no surprise, either to my readers or myself.

“Petitioner contends that the sexual harassment caused physical ailments. She further contends that the settlement proceeds should not be taxable because of the physical effects of the harassment. Petitioner did not provide any evidence to show that any portion of the settlement proceeds were used for amounts paid for medical care attributable to emotional distress.

”Pursuant to the settlement agreement, the lump sum that petitioner received was for compensatory damages, including emotional distress. Accordingly, the lump sum payment of $35,675 that petitioner received in 2013 is not excludable from her gross income pursuant to section 104(a) (2).” Transcript, at p. 6.

The warning here applies as well to practitioners who advise victims of sexual harassment, both in structuring and documenting settlements, and advising their clients of the consequences.

Channeling Chanelle can be detrimental to happy client-attorney relationships.

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