Settlements and taxation

Dear Editor:

I am writing to correct an error I had in my “Taxing Confidentiality in Settlements, Another View,” which ran on July 19. I am grateful to a reader for calling it to my attention. In my letter, I said that:

“The settlement agreement expressly said that. The balance of $80,000 was really for confidentiality – and the settlement agreement expressly said that too. In that sense, I’m not sure the Tax Court had much choice.”

Those statements are incorrect, and I apologize for this embarrassing error. The settlement agreement in Amos was not specific and did not call out these amounts. Even so, I continue to believe that the Amos case is not of major concern and that it has not been followed, although the IRS and the Tax Court have had chances to do so.

However, I understand that there are differences of opinion. For lawyers and clients who do view Amos as a threat, if the parties are comfortable allocating a small amount to confidentiality, treating that amount as taxable, and if that small number does not prevent the confidentiality provision from having teeth if it is violated, that is one potential solution to the concerns.

Thank you.

Sincerely,

— Rob Wood

Managing Partner, Wood LLP.