Taxation from Selling Legal Claim

[fastlapp]

Hello - I recently won a securities related lawsuit. I sued large publicly traded company as an individual. The origin of the lawsuit is a breach of contract relating to securities which I held in my personal brokerage account. This is not a class action lawsuit. I sued on a contingency fee arrangement. The lawsuit will likely be appealed, and I have not received any settlement or judgement proceeds. 

To avoid the "plaintiff double taxation" trap, I am considering selling my claim to a legal settlement to a business which specializes in litigation financing. 

How is income from the sale of the legal claim categorized? Solely by way of examples, if I sell a a legal claim with a gross $2M settlement value to a business for $1M, how will the $1M income to me be taxed? 

My CPA does not know, and I will be hiring a settlement tax attorney in due time but I wanted to get further understanding while I look for one. 

[RobertB4444]

Without having enough details to give a detailed answer I will just give you a good rule of thumb when it comes to lawsuit proceeds and then I will tell you to make sure to consult an attorney and an accountant.

The rule of thumb is that if your lawsuit proceeds are to replace money that would have been taxed if you had earned it then they are taxable.  If not then they're not.

There are exceptions to this rule (aren't there always?) but it gets you a long way towards the goal.  

In your case if this suit was to recover money that you would have earned through the sale of stock or working then it is all taxable.  And if you sell this legal claim then the money that you are paid is in lieu of the claim 

So if the claim was taxable then the money that you received from someone for the claim is taxable.

Now make sure to talk to that attorney and a tax professional who has all of the details of your case.

@fastlapp