The following is an article in the
February edition of the NATP TAXPRO Monthly:
Antonio Chappell was injured on April 29, 2005, in a collision with an employee of Mittal Steel USA, Inc. Chappell suffered personal physical injuries due to this collision. He continues to suffer from back pain that causes discomfort on his right side into his right leg. On March 28, 2007, Chappell submitted his first complaint to Mittal Steel USA, Inc., stating that his injuries are permanent in nature and will cause additional medical bills and pain and suffering in the future.
On August 8, 2009, Chappell and Mittal Steel entered into a settlement agreement to award Chappell damages for medical bills, lost wages, and pain and suffering. In the settlement, Chappell would receive $45,000. The parties were given 30 days to file dismissal documents. On August 9, 2009, Mittal Steel issued Chappell a Form W-9 to verify his social security number. Chappell refused to sign the Form W-9 stating that no 1099 reporting is required because the amount received was not taxable income to him. A settlement received on account of a personal physical injury is not taxable income to the receiving party under §104(a)(2).
Mittal Steel requested a motion to extend the time to file the dismissal documents on September 4, 2009, and asked the Court to issue a briefing schedule to address the tax issues attributable to the settlement paid to Chappell. On October 9, 2009, Chappell filed a motion for a hearing and asked for payment of interest and attorney fees from Mittal Steel.
Chappell’s injuries were caused by negligent operation of a motor vehicle owned by Mittal Steel. The amount that Chappell requested from Mittal was the amount needed to pay medical bills, lost wages, pain, and suffering, and future medical bills. The treatment of such amount received in a settlement that stems from physical injury is nontaxable, so Chappell is not required to file Form W-9 with Mittal Steel.
As for the request made by Chappell for payment of his attorney fees, the Court stated that the fees attributable to being represented in a settlement case are paid by each party who incurred the expenses.
The motion for an extension to file dismissal documents by Mittal Steel was denied as moot because there is no filing requirement for Form 1099-MISC for a physical injury settlement.
Chappell v. International Steel Group
105 AFTR 2d 2010-1229