The Taxation of Legal Settlements and the Deductibility of Associated Legal Fees - 0.2 Nano CPE

Not Every Settlement Is Tax-Free.

Clients often assume that money received from a lawsuit simply restores what was lost and therefore shouldn’t be taxed. In reality, the tax treatment of settlements depends entirely on the origin of the claim and the type of damages involved.

This course explains how the IRS determines what portion of a settlement is taxable, what may be excluded, and how legal fee deductions can significantly affect the final tax outcome.

Learning Objective

Determine when legal settlements are taxable or excludable and how legal fee deductions are treated under current tax rules.

Course Description

This nano-learning course explains the tax treatment of legal settlements and the deductibility of related legal fees under current federal tax law.

Who Should Take This Course

Tax and accounting professionals advising individuals or businesses involved in litigation, settlement negotiations, employment disputes, or other legal claims that produce taxable or potentially excludable settlement proceeds.

Why This Course Is Important

Legal settlements can create unexpected tax liabilities if damages are mischaracterized or legal fee deductions are misunderstood. Understanding the distinction between physical injury damages, taxable non-physical claims, punitive damages, and attorney-fee treatment allows practitioners to help clients anticipate tax consequences before settlement agreements are finalized.

Author / Instructor

Lee T. Reams, Sr., BSME, EA
Lee T. Reams, Sr. is a nationally recognized tax instructor and Enrolled Agent specializing in complex individual taxation and IRS procedure. His teaching emphasizes clarity, real-world application, and strategic compliance for practicing tax professionals.

Course Details

This course qualifies for NASBA continuing professional education credit. CountingWorks, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.nasbaregistry.org.

Understand the Tax Consequences Before the Settlement Check Arrives

Start The Taxation of Legal Settlements and the Deductibility of Associated Legal Fees and learn how settlement structure and legal-fee treatment can dramatically affect the final tax outcome.