@Opus 17 @DoninGA @rjs @TomD8
Opus (or others),
1. Can you please share the method within Turbotax by which it is possible to A) "zero them out in Turbotax so they won't be added to your income" and B) 'but you will want to have an explanation prepared in case the IRS asks questions. "?
I am in a similar boat and am inclined to adopt Opus' Option A approach, effectively applying the 1099-misc and other future recovery provided by the receivership against the investment basis. However, since this particular check was from an associated lawsuit settlement (https://ethreeadvisors.com/project/shecter-et-al-v-mills-potoczak-company-pc-et-al/) vs. direct investment proceeds, it was reported as 1099-misc, and therefore it is unclear to me how to offset this, as TT and the IRS will treat this money as income vs. capital gain.
2. It also concerns me that the regulations for lawsuit settlement seem very sparse and lean mostly towards personal injury and/or punitive damages instead of the compensatory damages which I think applies here. I found this old audit guide (https://www.irs.gov/pub/irs-utl/lawsuitesawardssettlements.pdf) which suggests that IRC 1001 exception could apply to IRC 61, but does not go into detail regarding applicable situations.
If you or anyone can share any other/better references that seem to apply to this situation, it would be most appreciated.
Thank you!!!!
