◙ Taxation of Payments Received by Former Employee.
Apropos to the checklist article is a recent ruling on tax consequences of structuring a settlement with a terminated employee. A former employee entered into a settlement with her employer relating to mental anguish and emotional distress from a claimed hostile work environment. The IRS held that the economic benefit and constrictive receipt doctrines would not apply to cause the employee to report income prior to her actual receipt of cash. PLR 200836019. The Settlement Agreement and Release which the employer and employee entered into required a payment of a lump sum initially, and periodic payments for other claims. The agreements preclude the employee for accelerating, deferring or otherwise changing the payment sequence. The employee cannot elect to receive the commuted value of the periodic payments. The employer could enter into a non-qualified assignment with a company that will make the payments. No assets were set aside to secure these payments. The employee is not deemed to have received any property when the employer pays the assignment company funds. Because of the restrictions on the employee she cannot be deemed to constructively receive the funds, there is no current taxation.
◙ Malpractice Coverage.
All professionals need it (except for those streakers who think going bare is smart). An attorney was recently sued for malpractice. Then the nightmare of all professionals took place. The insurer denied coverage. The insurer claimed that the attorney had an awareness of the claim in 2003, so that coverage under a 2004 policy was not required. The attorney should have notified the insurer in 2003 when he first became aware of the issue. Ackerman v Westport Insurance Corp., Dist. Ct. (Linares, USDJ), 9/8/08. Deteriorating economic conditions, deals falling apart, and more, are all likely to trigger more claims. All professionals should be wary of the lessons of this case and report any possible issues at the first appearance of a potential claim.
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