Physical Injury

Do The Monies Or Amounts Received By An Egg Donor In Exchange For Her Eggs Constitute Taxable Income?

Issue

Do the monies or amounts received by an egg donor in exchange for her eggs constitute taxable income?

Related Tax Rules or Regulations

Internal Revenue Code Section 61 provides that gross income includes all income from whatever sources derived, including compensation for services.

Internal Revenue Code Section 104(a)(2) excludes from taxable income the amount of any damages (other than punitive damages) received on account of personal injuries or physical sickness.

Income Tax Regs sec. 1.104-1(c)(1) defines the term “damages” as “an amount received (other than workers’ compensation” through prosecution of a legal suit or action, or through a settlement agreement entered into in lieu of prosecution.”

WHAT? I HAVE TO PAY TAXES ON MY LAWSUIT AWARD?

You’ve just received an award as the prevailing party in a lawsuit and it’s just a few weeks before the April 15th tax deadline. As you organize your documentation for the preparation of your taxes, you suddenly wonder if you have to pay taxes on the legal proceeds that you received a few weeks earlier. Are they indeed taxable?  Whether you must include the amount of the proceeds in your income depends on all the facts and circumstances of each individual case. It also depends upon the type of injury incurred.

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