Trying to represent yourself in front of the IRS is like representing yourself in court - you'll soon find out you have an idiot for a client. The more money involved - the more you need help. Hire someone - you will not regret it.
I agree you should consult and retain a tax attorney, enrolled agent, or CPA depending on the issues involved. I suspect your entire "employment settlement" is being treated as income. Qualified professional help is what you need. Good luck.
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The taxability of employment issues can be tricky. You definitely should have a tax lawyer review this. Also, it is much better to have a tax lawyer negotiate for you than to do it yourself.
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You should speak with a tax attorney. It could be that the IRS is correct. Employment settlements are not per se excluded from income. They are only excluded if they are compensation for physical injury.
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