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Subject:  Re: Litigation Settlement - no 1099-MISC Date:  3/31/2013  8:55 PM
Author:  Wradical Number:  118238 of 121114

We received $46.82 last year as part of a class action litigation settlement fund. When the check arrived, I saved the stub and the short explanatory note that came with it, part of which reads:

"Because the tax treatment of this distribution varies based on the recipient's tax status, the Claims Administrator cannot determine the appropriate tax reporting for any recipient. You should consult your tax advisor to determine the tax consequences, if any, of this distribution to you."

We didn't get a 1099-MISC but figured it goes under Miscellaneous Income. Am I mistaken?

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You won't generally get a 1099-MISC for those payments. For one thing, it's under $600, which is where the filing threshold kicks in for most items on 1099-MISC.

Whether it's taxable or not depends on what the recovery is all about.
If it's investment-related, was it related to stock you have sold? If so, it's probably a capital gain. Or maybe a dividend. (Though they should issue a 1099-DIV for that, but I think a lot of those payments might qualify as such.)Or maybe a reduction in basis.

If it's related to products or services you paid for, was it business-related?

A lot of people, myself included, got a class-action payment for foreign-exchange charges on credit cards. Since the only foreign travel I've done is for personal vacations, it's a reduction of past vacation costs. Nontaxable. And not much money. But if I used credit cards for business travel, then it should be taxable income.

I also got one for a class action against a drug company on behalf of drug purchasers. My prescription purchases are generally paid with pre-tax flex plan dollars, so I figured it was taxable. Again, it wasn't much. I put that in miscellaneous income.

Bill
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