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We posted a few hours ago about the Amos tax case, and we gave our amateur opinion that it was unlikely to have much of an effect in the product liability area.

Professor James Maule, of Villanova, who blogs at Mauled Again, is less sanguine. He has suggested that, so long as confidentiality agreements are common in product liability settlements (and they are, of course), the IRS might well take the position that the portion of a settlement received in return for confidentiality is taxable.

The good professor notes that Amos has in fact been cited in a few later tax cases — Braden v Comr, TC Summary Op 2006-78; Green v Comr, TC Memo 2005-250; and Allum v Comr, 2005-177 — although never for the confidentiality issue, which is what we’re thinking about here.

Finally, Professor Maule provided this list of articles that discuss the Amos issue, in case this comes up in one of your settlements:

  • McMillian, “The Nuisance Settlement ‘Problem’: The Elusive Truth and a Clarifying Proposal,” 31 Am. J. Trial Advoc. 221;
  • Sorrels & Choudhury, “Plaintiff’s Attorneys Beware: Little Known Tax Consequences Associated with Confidentiality Provisions,” 6 Hous. Bus. & Tax L.J. 258 (also appears in 69 Tex. Bar J. 120);
  • Mehta, “Lasting Agreement,” 30 Los Angeles Lawyer 28 (near the end of the article); and
  • Freeman, “Ethics Watch: Another Reason to Avoid Confidential Settlements: Taxation,” 16 S. Carolina Lawyer 9.

One of the joys of blogging is the chance to learn something new every day. (Of course, when you start from our base of knowledge, those opportunities truly abound.)