Today TaxMama hears from Marty in NJ who’s perplexed. “I got a 1099-MISC from Ameriquest Multistate Settlement Administrator with income in box 3, other income. Is this taxable? The settlement resolves allegations that Ameriquest failed to adequately disclose home loan terms, whether loans carried fixed or adjustable rates, inflated appraisals, charged excessive loan origination fees and prepayment penalties.”
Hi Marty,
Good question. After reading this, I get the impression that this can be interpreted one of these ways. In all cases, IRS’s computers will be looking for income on Line 21 of the Form 1040. https://www.ameriquestmultistatesettlement.com/faq.htm#Dis
1) This is compensation for excessive interest. If that is the case, the settlement should reduce Schedule A interest expenses. Report on Line 21 and take it back out, using a disclosure statement showing the reduction on Schedule A.
2) This is for excessive fees incurred in the process of getting the loan. In which case, this would reduce the basis of the home. Report on Line 21 and take it back out, using a disclosure statement showing the adjustment to basis.
3) This is punitive damage for unethical behavior. Punitive damages are not deductible to the payer, nor income to the payee. Just report the income on Line 21 and deduct it back out with your interpretation. Are you so bold? Just get some evidence of the punitive nature of the court award. Though, generally, these are negotiated settlements, rather than judgments.
What other options can you think of? Perhaps someone else knows the definitive answer?
The settlement administrators have, as usual, completely woosed out on the taxability of the settlement and abdicate total responsibility. I hate that.
Someone should bring a class action suit against the class of settlement administrators for always being so cowardly and irresponsible. There’s no reason they can’t arrange to define the tax nature of situation. But…their main job is collect millions of dollars in fees – and to protect themselves from liability.
Oh well, does this help at all?
And remember, you can find answers to all kinds of questions about settlements and other tax issues, free. Where? Where else? At TaxMama.com
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