False Lien Audit 2026: Slander of Title Damages & Return of Capital Rules скачать в хорошем качестве

False Lien Audit 2026: Slander of Title Damages & Return of Capital Rules

You settled a lawsuit over a false lien on your property. You assume the money is tax-free compensation for the hassle. You are wrong. The IRS views "Slander of Title" not as a personal injury, but as a property tort, which triggers a complex calculation involving your property's adjusted basis. Unlike personal defamation (libel/slander), which attacks your reputation, Slander of Title attacks your property's value. This means it fails the "Physical Injury" test of IRC Section 104(a)(2) and cannot be excluded as tax-free personal injury damages. Instead, you must apply the Return of Capital Doctrine. The settlement reduces your basis in the property, and you are only taxed if the payout exceeds your total investment. As The Finance Observer, I have performed a forensic review of United States v. Gilmore and the Raytheon decision to explain how to report this properly. In this video, we dissect the "In Lieu of What" test, why punitive damages are always taxable under Glenshaw Glass, and the specific capitalization rules for your legal fees. FORENSIC BREAKDOWN: 0:00 The Scenario: Why Slander of Title is a Property Tort, not a Personal Injury 00:57 The Bedrock: Origin of the Claim Doctrine (Gilmore) & Return of Capital 01:21 The Test: Raytheon Production Corp v. Commissioner ("In lieu of what were the damages awarded?") 02:05 The Distinction: Why IRC Section 104(a)(2) excludes these damages (No Physical Injury) 03:24 The Taxable Bucket: Punitive Damages (Glenshaw Glass) and Interest (Kovacs) 04:02 The Math: How to calculate Basis Reduction vs. Immediate Capital Gain 05:05 The Legal Fees: IRC Section 263 & Woodward (Why you must Capitalize fees to Basis) 05:41 The Paperwork: 1099-MISC Box 3 & The Gross Proceeds Rule (IRC Section 6045(f)) 06:36 The Reporting: Commissioner v. Banks (Why you report 100% of the gross award) 07:10 The Strategy: "Offensive Drafting" in the settlement agreement (Diminution in Value) DISCLAIMER: I am The Finance Observer. This content is for educational purposes only. Damages received for injury to property are generally treated as a return of capital, which reduces the property's basis. Any amount in excess of basis is treated as capital gain. Punitive damages and interest are fully taxable as ordinary income. Legal fees incurred to defend or perfect title must be capitalized under IRC Section 263. Always consult a qualified Tax Professional.