Stormy Daniels and Michael Cohen: More Tax Issues, As Tax Expert Rob Wood Explains

Stormy Daniels and Michael Cohen: More Tax Issues, As Tax Expert Rob Wood Explains

The Stormy Daniels payoff story has gotten a lot of attention from news websites, including this one. Tax lawyer Rob Wood explained the tax aspects of the story in an April report on Sequence Media News. The story hasn’t gone away, however, and recent disclosures about the payment have moved our tax expert to explain further the tax implications for the person who paid the money. He also discusses this subject in his article, “Stormy Daniels, Michael Cohen, Giuliani, Trump & Taxes.”

 Rob Wood

Rob Wood

The original story was that Donald Trump’s attorney, Michael Cohen, had paid Ms. Daniels $130,000 on his own, with no contribution from Mr. Trump. Wood explained that the IRS would treat the payment as income to Ms. Daniels. The money would be subject to income tax. More recent information has surfaced, and it now appears that Mr. Trump reimbursed Mr. Cohen for the $130,000 payment. This is important because it affects the payment as a tax deduction.

Wood notes that a payment such as the hush money in this case could conceivably be a business deduction for someone. In this case, it appears that Mr. Cohen was acting as an agent, not as a principal. “Lawyers fundamentally are agents of the principal.” Whenever a lawyer or law firm pays a settlement, the question arises whether they are paying it themselves or on behalf of a client. Wood says that these payments are almost always on behalf of clients. So, if there is a tax deduction in a case like this one, the deduction would belong to the client. In this instance, that would be President Trump.

Wood adds that, since the change in the tax law effective in 2018, parties to a sexual harassment case need to be careful. Lawyers should be involved, and everyone needs to be aware that the tax issues have become more complicated under the new law.

Robert W. Wood is the Managing Partner of Wood LLP, San Francisco. Often listed among the best tax lawyers in America, Wood has broad experience in corporate, partnership and individual tax matters. Concerning the tax treatment of litigation settlements and judgments, he is perhaps the preeminent tax lawyer in the United States. He is also an authority on merger and acquisition tax matters, tax opinions, offshore account and entity disclosures, and many types of tax controversies. The Legal Broadcast Network is a featured network of Sequence Media Group.

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