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Dennis Rodman and Your Car Accident or Injury Settlement

Presser Law, P.A. > Blogs  > Dennis Rodman and Your Car Accident or Injury Settlement
Personal injury blog on settlement agreements and taxes

How Dennis Rodman Plays a Role in Your Car Accident or Injury Settlement

Most people do not know how Dennis Rodman influences their car accident and personal injury settlement. The story, just as Dennis Rodman himself, is an interesting one.

Background

It is not often that professional sports and personal injury law intersect.  However, thanks to Dennis Rodman, that is exactly what happened in 2003.

Basketball fans will remember that in the 1990’s, no team was better than the Chicago Bulls. Led by Michael Jordan, the Chicago Bulls won 6 championships in 7 years. The Chicago Bulls dominated the league. In the 1995-1996 season, they won 72 out of 82 games – a record that would stand for over 20 years. Michael Jordan was the undisputed leader of the team. However, he had some serious help, including Scottie Pippen, Horace Grant, and Dennis Rodman.

Dennis Rodman was rebounding machine known for his colorful personality and style. He was also a controversial player and found himself in trouble on more than one occasion. One controversial moment came on January 15, 1997, during a game against the Minnesota Timberwolves. In that game, Dennis Rodman landed in a crowd of sports photographers after going for a loose ball. Out of frustration, Mr. Rodman kicked one of the photographers in the groin.

Following the kick, the photographer went to the hospital for evaluation. After being released from the hospital, the photographer sought additional care with the Veterans Affairs (VA) Medical Center. No significant signs of trauma or injury were noted in either the hospital report or the VA records.

The photographer later brought a claim against Dennis Rodman for the injuries sustained in the incident.

The Settlement Agreement and the IRS

Injury settlement amounts are, typically, not considered as income. As a result, they are not subject to income tax. This means, usually, the injured party in an car accident or personal injury settlement does not have to pay taxes on the amount they receive as compensation for their injury claim.  As such, the photographer did not report the amount of money he received from the Rodman settlement to the IRS in his 1997 income tax filing.

In 2017, the parties reached a settlement agreement. The amount of the settlement was $200,000.00. The Settlement Agreement was titled “Confidential Settlement Agreement and Release.”  The Agreement provided the terms of the settlement, release, facts, and allegations would be kept confidential.

The IRS discovered the settlement and its terms. It disagreed the full settlement amount was solely related to the photographer’s injury.  Instead, the IRS determined the settlement was not for physical injury but, rather, for confidentiality. The IRS sent notice to the photographer notifying him that he could not exclude the settlement amount from his gross income.

The Appeal and Ruling

The photographer disagreed with the IRS’s determination. He appealed the IRS ruling and in Amos v. Commissioner.

The photographer argued that the entire $200,000.00 was for his the injuries received. The IRS argued that only a nominal amount (i.e. $1.00) was attributable to the injury and that the remaining settlement was subject to taxation.

The Tax Court rejected the arguments before it from the photograph and from the IRS. It found that the dominant reason Rodman entered into the settlement was to resolve any potential claims from the photographer. However, the Tax Court found a portion of the settlement agreement was for “nonphysical injury provisions” (the confidentiality agreement) subject to ordinary income tax.

No amount of the settlement agreement was specifically apportioned for the confidentiality agreement. After reviewing the case, the tax court held that $80,000.00 of the agreement would be attributable to the confidential nature of the settlement. As such, $80,000.00 would have to be claimed as income and taxes would have to be paid on that amount.

With that ruling, Dennis Rodman helped reshape the landscape of injury settlement agreements. Mr. Rodman left an interesting legacy on the basketball court. He has left an even more interesting one off it.

CONCLUSION

The Amos case continues to play a role in injury settlements to this day. Having an attorney who does not understand how to apportion settlement amounts or protect your settlement from the IRS can be costly to you.

 

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