Plaintiffs’ lawyers wisely shun tax advice. The straits of Section 104 abound with perils, and the need to plead everything resembling a claim upon which relief can be granted requires the pleader to steer a wide course,. with the Scylla of missing a valid claim for fear of negative tax consequences on one side, and the Charybdis of touching every base to make sure of success on the other. So the wise lawyer steers wide, gets the verdict or settlement that the client can accept, and leaves the tax consequences to the return preparer.

The preparer would do well to review the demand letter (if any), any workers’ comp, insurance claim forms, or similar filings (if any) and the pleadings before voicing an opinion.

I don’t know if the unnamed CPA who advised pioneering firefighter Suzanne Montes, Docket No. 17332-21, filed 6/29/23 to exclude from her 1040 the $400K she got from settlement of her lawsuit against the San Francisco Fire Dep’t. did any of the foregoing, but Judge Mark V. (“Vittorio Emanuele”) Holmes sure did at pp. 6-8  of this off-the-bencher.

I’d like to quote Judge Holmes’ language, but once again the Genius Baristas have posted the decision in a format which prohibits me from dragging-and-dropping. He scans the settlement agreement, but what really does Suzanne in is the complaint.

Note I don’t fault Suzanne’s attorney. S/he pled everything one could reasonably plead, based on the facts Judge Holmes states. And s/he got what seems to be a reasonable settlement.

Judge Holmes lets the CPA preparer off lightly. He holds Suzanne reasonably relied on the CPA’s advice, so no chops.

And he does have criticism for the IRC’s mind-body dualism, which he says he’s criticized elsewhere. See, for example, my blogpost “The Egg and I,” 1/22/15.