The Tax Court held that a settlement payment received by an S corporation for a trade secret misappropriation lawsuit was taxable as ordinary income. In the case, the corporation entered into a settlement agreement with another company. The S corporation listed the settlement amount as capital gain. However, the IRS denied this claim, stating that the settlement amount was ordinary income. While the corporation argued that the damaged trade secret was a capital asset, the Court held that the damages represented lost profits which are taxable as ordinary income.
Points of Interest
- . . . nearly every other indicator including employment, spending, job security, and the consumer confidence index all suggest the populace is not in prime condition.
- It is likely and probable that the estate tax exemption of $3.5 million will be reinstated for 2011 and subsequent years.
- It is our advice that you have your estate plan, employee benefits plan, and your income tax strategies reviewed at once to reflect the current laws.
By: Basi & Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors