I've been following this discussion and wanted to add something that might help clarify the confusion between your CPA and attorney. The issue often comes down to timing and documentation requirements. Your attorney is correct that construction defect settlements are generally not taxable income when they compensate for property damage or loss of property value. However, your CPA is also right to be concerned about the 1099-MISC creating a paper trail that the IRS will expect to see reported. Here's what I'd recommend: First, get a copy of your settlement agreement and carefully review what the $87,500 was intended to cover. If it's purely for property damage/repairs, then it's likely not taxable up to your basis in the property. Second, contact the builder with a polite but firm request for a corrected 1099-MISC, explaining that construction defect settlements for property damage aren't reportable income under IRS guidelines. If the builder refuses to correct the 1099, you'll need to report the income on your return but then subtract it out with proper documentation (Form 8275 disclosure statement explaining your position). This protects you from audit issues while still claiming the correct tax treatment. The key is having solid documentation - your settlement agreement, any correspondence with the builder, and receipts for actual damages. Don't let the 1099-MISC force you into paying taxes you don't legally owe, but make sure you handle it properly to avoid IRS complications down the road.

I'm dealing with a very similar situation and wanted to share what I've learned from researching this extensively. The confusion between your CPA and attorney is actually pretty common because construction defect settlements sit at the intersection of property law and tax law. From what I've found, the key factors are: 1) What specifically was the settlement for (property damage vs. other damages), 2) Whether it exceeds your basis in the property, and 3) How to handle the 1099-MISC mismatch with the IRS. Based on the responses here, it sounds like your best approach is to first try getting the builder to issue a corrected 1099 or at least a letter acknowledging it was issued in error. If that fails, the Form 8275 route with detailed documentation seems to be the safest way to avoid paying taxes you don't owe while staying compliant. One thing I'd add - make sure you have a clear breakdown of what your $87,500 settlement actually covered. If any portion was for non-property damages (like emotional distress, punitive damages, or lost use), those parts might have different tax treatment even if the property damage portion isn't taxable. Document everything and keep all your settlement paperwork organized. From what others have shared, the IRS may question it later, but having solid documentation upfront makes resolving it much easier.

dont hold ur breath. took 6 months total for me but they did eventually help. its like watching paint dry fr

Been through this process twice unfortunately. First time took about 10 weeks to get assigned, then another 6 weeks to resolve. Second time was faster - about 6 weeks total. The key is documenting everything and being persistent but polite. Also make sure you have all your paperwork ready when they do contact you because any delays on your end just restart the clock. Hang in there, they will eventually help but the timeline is definitely longer than what they initially tell you.

Does anyone know if the rules are different for settlements from class action lawsuits? I received a notice that I'll be getting about $4,200 from a data breach settlement in a few weeks. The notice didn't say anything about taxes.

This thread has been incredibly helpful! I'm dealing with a similar situation but with a twist - my settlement was from a workplace injury and included workers' comp benefits. From what I've researched, workers' comp is generally not taxable, but I'm confused because part of my settlement was for "future lost earnings capacity" rather than just medical expenses. Does anyone know if settlements for future earning capacity from workplace injuries follow the same tax-exempt rules as regular personal injury settlements? I'm worried this might be treated differently since it's more speculative than actual medical costs or current lost wages. Also seeing all the mentions of AI tools and IRS callback services - might have to try those since my situation seems pretty complex with multiple settlement components!

21 Has anyone tried calling the IRS Taxpayer Advocate Service? I've heard they can sometimes help when you're having trouble with the regular IRS channels. Might be worth a shot if nothing else is working.

I've been dealing with the exact same issue for about two weeks now! The system outage error is so frustrating, especially when you're trying to be responsible and set up a payment plan before the deadline. One thing that worked for me was actually going to a local IRS Taxpayer Assistance Center. I know it's old school, but they can help you set up the payment plan in person if you bring all your documentation. You can find locations on the IRS website - just make sure to call ahead because some require appointments. Also, if you end up having to mail in Form 9465, make sure to send it certified mail so you have proof of delivery. That way if there are any questions about timing, you can show exactly when the IRS received your request. The whole situation is really highlighting how outdated their systems are. Hoping they get this fixed soon for everyone still dealing with it!

Just to reinforce what others have said - your personal injury settlement should definitely be non-taxable! I had a similar situation after a workplace accident a few years back. The settlement was around $28,000 for my physical injuries, and I was terrified about the tax implications too. What really helped me was understanding that IRC Section 104(a)(2) is pretty clear-cut for cases like yours. Since you were physically injured in an accident and the settlement compensates for those injuries, it's excluded from taxable income. The fact that your medical bills were negotiated down to zero actually works in your favor - there's no "recovery of previously deducted medical expenses" issue to worry about. The key thing is that your settlement and your 1099-C situations are completely separate for tax purposes. The non-taxable settlement won't push you into a higher income bracket that would make your canceled debt taxable. I'd definitely recommend keeping all your settlement paperwork organized though. Even though audits for this type of thing are rare, having everything documented gives you peace of mind. Your attorney should have provided you with a settlement statement that breaks down exactly what you're being compensated for - that document is gold if you ever need to prove the nature of your settlement.

I'm glad to see so many helpful responses here! As someone who recently went through a similar situation with a personal injury settlement from a motorcycle accident, I can confirm that the advice about IRC Section 104(a)(2) is spot on. Your settlement for physical injuries from being hit by a delivery truck should be completely non-taxable. The fact that you didn't have out-of-pocket medical expenses actually simplifies things - there's no issue with having to pay taxes on any portion that might have covered previously deducted medical bills. One thing I learned during my own research is that the IRS Publication 525 has a specific section on damages and settlements that's worth reading if you want the official guidance straight from the source. It clearly states that damages for personal physical injuries are excludable from income. Since you mentioned using the settlement to pay off debts and having 1099-Cs, just remember that these are separate tax events. Your non-taxable settlement won't affect whether you owe taxes on the canceled debt - that determination is based on your regular income and insolvency status. Keep all your settlement documents safe, but you should be able to file your return with confidence knowing that the settlement doesn't need to be reported as income anywhere on your tax forms.