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weird tax situation involving class action settlement and bankruptcy

Due to disability we had to file chapter 7 bankruptcy in 2019. Trustee gave us a discharge but kept the case open because of a pending class action lawsuit for back wages. Received a W2 for back wages (taxes withheld) and a 1099INT for the interest portion (no taxes withheld). Turned the check over to the trustee and after negotiations he sent us a portion of the money back. We were entitled to that money and any amount of the prepaid taxes we can recover. Could not get a corrected W2 from settlement administrators because the trustee wanted the check endorsed and sent to him so as far as they are concerned we cashed the check.

 

Through our attorney, we have requested a copy of the estate tax returns from the trustee. (still waiting!)

 

I think we could file with an explanation and copies of all the documentation we can get our hands on. Is there a way to do this and still file electronically using Turbo Tax? That W2 income needs to come off the 1040 in some manner and I am not seeing a way to do it within Turbo Tax.

 

Any thoughts on finding a tax preparer that might actually know how to deal with this type of situation? We would ask our attorney, but! confidence level not high there.

 

Any and all thoughts, comments, ideas welcome.

Thank you!

 

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2 Replies

weird tax situation involving class action settlement and bankruptcy

I think we could file with an explanation and copies of all the documentation we can get our hands on. Is there a way to do this and still file electronically using Turbo Tax? That W2 income needs to come off the 1040 in some manner and I am not seeing a way to do it within Turbo Tax.

 

Turbotax has no ability to e-file with nonstandard attachments (not even pro software)

 

in my opinion the w-2 is taxable the money went to pay prior debts. not extinguished in bankruptcy.

 

this is a public forum, the advice you get is not official or legally binding. what you need to find is a person that not only knows income tax laws but bankruptcy law as well - this would likely be a multi-member law firm

weird tax situation involving class action settlement and bankruptcy

Thanks Mike.

The whole amount is taxable money (wages and interest). The wages had tax deductions but not the interest.  You are correct, the money was used to extinguish debt.

 

Have a great weekend!

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