$289 Million Verdict Will Mostly Get Eaten Up by Taxes! Tax Expert Rob Wood Explains
Plaintiff Dewayne Johnson recently won a case against Monsanto and got a verdict totaling $289 million. It sounds like a fortune, but Johnson won’t get to keep all of it. In fact, most of it will be chewed up by fees and taxes. Tax lawyer Rob Wood explains in this report how the IRS will get a big share of the money. He also wrote about the subject in a recent Forbes article, “How IRS Taxes Kill Plaintiff's $289M Monsanto Weedkiller Verdict.”
Wood explains that his calculations are based on an estimate of the percentage of the verdict that will be taken up by attorney’s fees and costs, but his guess is probably a good one. He suggests that costs and fees will probably run to 50% of the award. It is also important to note that $250 million of the total verdict is punitive damages, and these damages are always treated, for tax purposes, as income to the plaintiff.
Wood says that the U.S. Supreme Court has ruled that a plaintiff who is awarded punitive damages is treated as receiving 100% of the award, even though a substantial amount of the award goes to the lawyers as fees and never even reaches the plaintiff’s bank account. Typically, a check for the award goes to the trial lawyer’s trust account. From that, attorney’s fees are deducted, and the plaintiff gets what is left.
At that point, Wood says, the new tax law rears its head. The new law has eliminated the tax deduction for legal fees in most cases, including the Monsanto case. So, using Wood’s rough calculations, the after-tax amount the plaintiff would receive from the $289 million verdict is about $50 million. But then, there’s the California income tax to consider. After the state takes its cut, the amount the plaintiff ends up with is about $18 million. That is still a lot of money, but it’s about 6.25% of the original jury award. The only ones getting rich on the verdict are the tax collectors.
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.