I received a Fair Fund disbersement and interest. The interest will be reported on a 1099 and subject to income tax. Will the disbursement be taxable?

[user816729]

Just in case, all the purchases of the security involved were made three and four years before the Fair Fund proceedings settled.

[DaveF1006]

Yes this can be construed as a lawsuit settlement and is a taxable event. According to IRS Revenue Code (IRC) Section 61, "all income is taxable from whatever source derived, unless exempted by another section of the code". Here is an IRS link that covers this subject more in detail. 

To report in Turbo Tax Online if you do not receive a 1099-MISC for the settlement disbursement.

1. Go to federal
2. Wages and Income
3. Less Common Income
4. Miscellaneous income
5. Other reported Income

If you receive a 1099-MISC.

1. Go to federal>wages and income>other common income>income from 1099-MISC
2. Enter the 1099-MISC
3. Next screen will ask you for a description of the income
4. Next screen asks if any of this uncommon income applies.  Here you can say this was from a lawsuit settlement..
5. Next question asks if this income is for back wages. You will say no. 
6. Finish the rest of the interview.

Keep in mind, you may receive a 1099-INT for the interest and a separate 1099-MISC for the settlement. These are reported separately. 

[user816729 · Accepted solution]

Thank you very much. I was aware of some of that and the link certainly helped. I had been having a problem with the idea of taxing an attempt to restore some of a purchase price, but the restoration is money coming in.

[DaveF1006]

It depends. If this was a worthless security previously, it should have been either reported as a worthless security or a capital loss in the prior years. Even if the loss wasn't reported previously, it should have been so this is still considered income.