What portion, if any, of the $1.6 million city settlement to James Chasse's family is subject to federal and state income taxes? How much will federal and state coffers be bolstered as a result of the settlement, and how much can the Chasse family expect to keep? —Dan Agnew, Vancouver
For those of you who've spent the past four years touring the moons of Saturn, James Chasse was the guy who died of blunt-force trauma while in police custody in 2006. (I'm not one to shy away from direct locutions—like, say, "was beaten to death by cops"—but details remain murky, and I suppose it's always possible Chasse caught a bad case of blunt-force trauma from an infected toilet seat.)
The whole incident went poorly enough to leave legal, if not literal, blood on the hands of the City of Portland, Multnomah County and AMR, the ambulance company involved. Those entities have now settled for $1.6 million, $925,000 and a reported $600,000, respectively.
I know what you're probably thinking: "$3.1 million? Dying in police custody seems like an exciting and lucrative career—and a real growth industry in Portland! But are the tax liabilities gonna kill me? Um, again?" Well, hold onto your hat—it turns out that compensatory damages in wrongful-death cases are usually tax-free!
Since you're being compensated for value lost—in this case, your life—the damage award (after the attorney's cut) doesn't count as income. (Punitive damages, however, do count as income, as does compensation for lost wages, so make sure your lawyer knows the difference and structures your settlement accordingly.)
One caveat: Since damages are paid to your estate, rather than to your heirs directly, estate taxes may apply to awards over the $1M Oregon estate tax exemption ($2M federal).
Other than that, though, it's pure profit, with no real downside that I can—oh, wait. Right.