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Discuss under what theories you might exclude amount

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V is involved in a car accident during which V is injured. V can no longer perform at her job as a violinist. She sues the person who caused the wreck as well as the person's employer since the individual was working as a delivery person at the time of the accident. V collects a total damage award of $12,000,000 made up of $2,000,000 of damages to her body, $2,000,000 of damages to her mind, and $8,000,000 in punitive damages. Her initial petition to the court (due to a poor lawyer) was silent on the split of what she was suing for and simply asked for a total award of $25,000,000. You are V's tax preparer. Given these facts, determine how much you would exclude from V's gross income based upon:

A. The most conservative interpretation of the amount excludible. Conservative meaning the most inclusion in gross income.

B. The most aggressive interpretation of the amount excludible. Aggressive meaning the most exclusion from gross income.

C. Even though V's attorney in problem 3 did a poor job on the allocation, he was still awarded, under the contract he signed with V, 25% of her taxable settlement as his compensation. Discuss under what theories you might exclude this amount from V's gross income (if possible), and how much income must her attorney recognize. If you were the attorney, would you have constructed your agreement with V in this fashion? Explain how, if at all, your answer might change if V's lawsuit were for age discrimination.

 

Reference no: EM131776531

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