Sausage, Capital Gain and Settlement Payments
4 Pages Posted: 9 Feb 2010
Date Written: October 26, 2009
Abstract
It is commonly understood that one should not watch sausage or laws being made.1 Perhaps that well-worn admonition should be super-sized in the case of tax laws, particularly (as today) when tax laws are so often used to not only raise revenue, but to make social policy. But sometimes tax problems are not the fault of the lawmakers who make the tax laws, the IRS that enforces them, or the Tax Court that interprets them. Sometimes, we taxpayers foul it up pretty nicely ourselves. That is at least one moral I take from Joseph A. Freda v. Commissioner,2 the latest in a long line of cases of similar ilk involving the tax treatment of litigation recoveries. That opinion is by Judge Chiechi, who is no Otto von Bismarck, but is also not known among tax lawyers for being gentle. In Freda, she turned up her nose at what the taxpayer attempted to serve, and in the last analysis, it was the taxpayer’s own cooking that spoiled the meal.
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