The income tax treatment of damages is a lot looser than it ought to be. You would think that when a claimant or plaintiff recovers money from a bad guy on a claim or lawsuit, the tax consequences would be clear. But often they are not.
One notorious case on this subject involves a tawdry incident that took place on a professional basketball court in front of a worldwide audience. The taxpayer was a photographer named Eugene Amos, who had an unpleasant interaction in Minneapolis with a fellow named Dennis Rodman. Yes, that Dennis Rodman. Amos got six figures from Rodman to shut up. Was it taxable income? The judge in the tax case wound up splitting the baby between Amos and the IRS.
Anyway, more than you ever wanted to see in connection with the events in question can be found here:
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