News & Events

News & Events

2.11.2016

Retroactive Tax Law Provides Tax Benefits for Victims of Wrongful Incarceration

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Jeremy Babener and Justin Hobson co-authored an article titled “Retroactive Tax Law Provides Tax Benefits for Victims of Wrongful Incarceration.” The article examines the newly enacted Internal Revenue Code section 139F, which addresses the tax treatment of damages for wrongful imprisonment.  Babener and Hobson note several areas for question where further guidance from the Internal Revenue Service would be helpful, including the treatment of punitive damages and damages paid to family members.

At the end of 2015, Congress eliminated some of the uncertainty regarding the tax treatment of damages for wrongful imprisonment. Newly enacted Internal Revenue Code section 139F provides that gross income does not include compensation received by an individual as a result of incarceration relating to the individual’s wrongful conviction of a crime. Moreover, individuals who paid tax on such compensation in years that normally are closed under the statute of limitations can get tax refunds as long as they file amended returns by December 18, 2016.