I suggest that you consult with a Certified Public Accountant as a starting point. The accountant can advise you as to whether or not the tax claims being made against you are appropriate or whether or not it would behove you to try to contest them in court.
Mr. Lundeen is licensed to practice law in Florida and Vermont. The response herein is not legal advice and does not create an attorney/client relationship. The response is in the form of legal education and is intended to provide general information about the matter within the question. Oftentimes the question does not include significant and important facts and timelines that, if known, could significantly change the reply and make it unsuitable. Mr. Lundeen strongly advises the questioner to confer with an attorney in your state in order to insure proper advice is received.
This is a long standing issue in Michigan and there are now a growing number of auto insurance companies sending tax forms on attendant care cases. There is no clear binding legal answer at this time. Many attendant care lawyers in Michigan are also split on whether attendant care should or should not be taxable. Therefore, the most important piece of advice is that you should speak to competent tax counsel. As a lawyer in Michigan who specializes in attendant care cases, I've been working with two tax experts on this issue in my own serious attendant care cases and I am happy to give you both names if you'd like to contact me. Both tax experts are very familiar with attendant care and the arguments being made about taxability of attendant care benefits.
Now, having said that, here are some of my own thoughts on the issue:
1. Generally speaking, even though I don't like it, I think in the end these benefits will be found taxable as they are income received for work performed. There are a couple of private letter rulings floating around there that go in different directions, but I believe that if this was
ever to reach a precedential court, it will likely be found taxable.
2. Where the injured person receives the benefits from his auto insurer per MCL 3112 (injured person is the real party in interest to receive attendant care benefits), and the injured person does not pay them over to the person rendering the services, it does not seem to me to create a taxable event. However, some might say that the IRS will look beyond the payee to what the benefit was paid for.
3. Another thought is to allocate as much as possible to a tort claim against your auto insurance company. Though exceedingly difficult to survive SD motions on such
claims, if there's a legitimate claim to allocate as an element of tort
damages, then we're obviously allocating less for attendant care.
Click here for more information on Michigan attendant care benefits:
A tax attorney or CPA is the best person to give advice on this subject. You should speak to one immediately.
As previously discussed, this is a front line battle currently be fought in all catastrophic injury claims that involve attendant care in Michigan. Consumer advocates believe that attendant care is an insurance benefit; therefore, not taxable. IRS advocates believe all money earned, should be taxed. Although, not completely settled, the IRS usually wins.
However, this battle over taxability is fought in the stratosphere. So what are you to do?
> You should speak with an attorney who handles a lot of attendant care cases to see if you can negotiate with the insurance company to increase your rate of pay.
> You should evaluate whether incorporating will decrease your taxes
> You should make sure aren't leaving any money on the table with the insurance company as it relates to any other benefits you (or your son) might qualify for but aren't receiving
See my website's section on Attendant Care benefits for additional information.
I wish you the best,
Attorney at Law