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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
7. Attorney fees and costs (including contin- Down payment assistance. If you purchase Losses. Losses of estates and trusts gen-
gent fees) where the underlying recovery a home and receive assistance from a nonprofit erally aren't deductible by the beneficiaries.
is included in gross income. corporation to make the down payment, that as- Grantor trust. Income earned by a grantor
8. Attorney fees and costs relating to whistle- sistance isn't included in your income. If the cor- trust is taxable to the grantor, not the benefi-
blower awards where the underlying re- poration qualifies as a tax-exempt charitable or- ciary, if the grantor keeps certain control over
ganization, the assistance is treated as a gift
covery is included in gross income. and is included in your basis of the house. If the the trust. (The grantor is the one who transfer-
Don’t include in your income compensatory corporation doesn't qualify, the assistance is red property to the trust.) This rule applies if the
damages for personal physical injury or physi- treated as a rebate or reduction of the purchase property (or income from the property) put into
cal sickness (whether received in a lump sum or price and isn't included in your basis. the trust will or may revert (be returned) to the
grantor or the grantor's spouse.
installments). Generally, a trust is a grantor trust if the
Emotional distress. Emotional distress it- Employment agency fees. If you get a job grantor has a reversionary interest valued (at
through an employment agency, and the fee is
self isn't a physical injury or physical sickness, paid by your employer, the fee isn't includible in the date of transfer) at more than 5% of the
but damages you receive for emotional distress your income if you aren't liable for it. However, if value of the transferred property, or has certain
due to a physical injury or sickness are treated you pay it and your employer reimburses you other powers.
as received for the physical injury or sickness. for it, it’s includible in your income.
Don’t include them in your income. Expenses paid by another. If your personal
If the emotional distress is due to a personal Energy conservation subsidies. You can ex- expenses are paid for by another person, such
injury that isn't due to a physical injury or sick- clude from gross income any subsidy provided, as a corporation, the payment may be taxable
ness (for example, unlawful discrimination or in- either directly or indirectly, by public utilities for to you depending upon your relationship with
jury to reputation), you must include the dam- the purchase or installation of an energy con- that person and the nature of the payment. But
ages in your income, except for any damages servation measure for a dwelling unit. if the payment makes up for a loss caused by
you receive for medical care due to that emo- that person, and only restores you to the posi-
tional distress. Emotional distress includes Energy conservation measure. This in- tion you were in before the loss, the payment
physical symptoms that result from emotional cludes installations or modifications that are pri- isn't includible in your income.
distress, such as headaches, insomnia, and marily designed to reduce consumption of elec-
stomach disorders. tricity or natural gas, or improve the Exxon Valdez settlement income. Include in
management of energy demand. your income on Schedule 1 (Form 1040),
Deduction for costs involved in unlawful line 8z, any qualified settlement income you re-
discrimination suits. You may be able to de- Dwelling unit. This includes a house, ceive as a qualified taxpayer. See Statement,
duct attorney fees and court costs paid to re- apartment, condominium, mobile home, boat, later. Qualified settlement income is any inter-
cover a judgment or settlement for a claim of or similar property. If a building or structure con- est and punitive damage awards that are:
unlawful discrimination under various provisions tains both dwelling and other units, any subsidy • Otherwise includible in taxable income,
of federal, state, and local law listed in section must be properly allocated. and
62(e), a claim against the U.S. Government, or • Received in connection with the civil action
a claim under section 1862(b)(3)(A) of the So- Estate and trust income. An estate or trust, In re Exxon Valdez, No. 89-095-CV (HRH)
cial Security Act. You can claim this deduction unlike a partnership, may have to pay federal in- (Consolidated) (D. Alaska).
as an adjustment to income on Schedule 1 come tax. If you're a beneficiary of an estate or
(Form 1040), line 24h. The following rules ap- trust, you may be taxed on your share of its in- You're a qualified taxpayer if you were a
ply. come distributed or required to be distributed to plaintiff in the civil action mentioned earlier or
you were a beneficiary of the estate of your
• The attorney fees and court costs may be you. However, there is never a double tax. Es-
paid by you or on your behalf in connection tates and trusts file their returns on Form 1041, spouse or a close relative who was such a
with the claim for unlawful discrimination, and your share of the income is reported to you plaintiff and from whom you acquired the right
the claim against the U.S. Government, or on Schedule K-1 (Form 1041). to receive qualified settlement income.
the claim under section 1862(b)(3)(A) of Current income required to be distrib- The income can be received as a lump sum
the Social Security Act. uted. If you're the beneficiary of an estate or or as periodic payments. You'll receive a Form
• The deduction you're claiming can't be trust that must distribute all of its current in- 1099-MISC showing the gross amount of the
more than the amount of the judgment or come, you must report your share of the distrib- settlement income paid to you in the tax year.
settlement you're including in income for utable net income, whether or not you actually Contributions to eligible retirement plan.
the tax year. received it. If you're a qualified taxpayer, you can contribute
• The judgment or settlement to which your all or part of your qualified settlement income,
attorney fees and court costs apply must Current income not required to be dis- up to $100,000, to an eligible retirement plan,
occur after October 22, 2004. tributed. If you're the beneficiary of an estate including an IRA. Contributions to eligible retire-
or trust and the fiduciary has the choice of
Pre-existing agreement. If you receive whether to distribute all or part of the current in- ment plans, other than a Roth IRA or a designa-
damages under a written binding agreement, come, you must report all income that is re- ted Roth account, reduce the qualified settle-
court decree, or mediation award that was in ef- quired to be distributed to you, whether or not ment income that you must include in income.
fect (or issued on or before) September 13, it's actually distributed, plus all other amounts See Statement, later. For more information on
1995, don't include in income any of those dam- actually paid or credited to you, up to the these contributions, see Pubs. 575 and 590-A.
ages received on account of personal injuries or amount of your share of distributable net in- Legal expenses. For tax years after 2017,
sickness. come. you can no longer deduct legal expenses that
were subject to the 2%-of-adjusted-gross-in-
Credit card insurance. In most cases, if you How to report. Treat each item of income come floor. If the qualified settlement income
receive benefits under a credit card disability or the same way that the estate or trust would treat was received in connection with your trade or
unemployment insurance plan, the benefits are it. For example, if a trust's dividend income is business (other than as an employee), you can
taxable to you. These plans make the minimum distributed to you, you report the distribution as reduce the taxable amount of qualified settle-
monthly payment on your credit card account if dividend income on your return. The same rule ment income by these expenses.
you can't make the payment due to injury, ill- applies to distributions of tax-exempt interest
ness, disability, or unemployment. Report on and capital gains. Statement. If you report on Schedule 1
Schedule 1 (Form 1040), line 8z, the amount of The fiduciary of the estate or trust must tell (Form 1040), line 8z, qualified settlement in-
benefits you received during the year that is you the type of items making up your share of come that is less than the gross amount shown
more than the amount of the premiums you paid the estate or trust income and any credits you're on Form 1099-MISC, you must attach a state-
during the year. allowed on your individual income tax return. ment to your tax return. The statement must
identify and show the gross amount of the

Publication 525 (2022) Page 33