In Kobe Bryant Crash Settlement, IRS Taxes And Fees Could Take 90%

The family of Kobe Bryant has agreed to a $28.5 million settlement to resolve the lawsuit over first responders sharing photos of the late NBA star, his 13-year-old daughter, and other victims following the 2020 helicopter crash. Los Angeles County will pay $13.5 million with an additional $15 million payment awarded to Vanessa Bryant from a jury trial.

Vaness Bryant accused LA County of negligence and violating her right to privacy and initially sought $75 million for emotional distress from the photos. However, there was no argument to show the images made plaintiffs physically ill or caused post-traumatic stress disorder. For this reason, the verdict is taxable. Under the tax code, personal physical injuries or sickness damages are tax-free. Emotional injuries are taxable.

Since 2018, many plaintiffs are taxed on gross recoveries, not the net after legal fees. This has been called a “new tax on legal settlements.” Under Commissioner v. Banks, a plaintiff with a contingent fee lawyer is treated as if they receive 100% of the money.

For more information see Robert W. Wood “In Kobe Bryant Crash Settlement, IRS Taxes and Fees Could Take 90%” Wood LLP, March 6, 2023.

Special thanks to Mark J. Bade (CPA, GCMA, St. Louis, Missouri) for bringing this article to my attention. 

https://lawprofessors.typepad.com/trusts_estates_prof/2023/04/in-kobe-bryant-crash-settlement-irs-taxes-and-fees-could-take-90.html