IRS Confirms: Wrongfully Imprisoned Exonerees Can Receive Tax-Free Structured Settlements

Affirming what’s generally been accepted as true for many wrongfully convicted individuals upon earning their freedom, the Internal Revenue Service published a Written Determination this past Friday (Number: 201045023) that removes any ambiguity surrounding the tax-treatment of compensation exonerees receive on account of personal, physical injuries suffered while incarcerated.

Click HERE to view IRS Memorandum 201045023

In its analysis, the Service noted:

“Compensatory damages for physical injuries and physical sickness (including damages received for economic losses flowing from the physical injury or physical sickness) that an individual receives from a state for wrongful conviction and incarceration are excluded from gross income under § 104(a)(2).”

Punitive damages and interest, however, are NOT excluded from gross income and are thus taxable. This position is consistent with the most recent history of this particular section of the tax code.

According to the Innocence Project, there have been 261 post-conviction DNA exonerations in the United States. And that number is expected to grow.

I have personally had the honor of helping secure, via structured settlements, the financial futures of several men who spent more than a decade in prison for crimes they did not commit. This welcome memorandum from the IRS helps advance the cause of justice by ensuring the system will not mistreat these victims a second time.

For additional information on the topic of wrongful convictions, please visit the websites of these innocence-based organizations we proudly support:

The Innocence Institute of Point Park University
Pittsburgh, PA
Bill Moushey, Director

Innocence Matters
Torrance, CA
Deirdre O’Connor, Executive Director

The Finn Financial Group remains committed to helping those who have been wrongfully imprisoned. We welcome the opportunity to partner with attorneys who are working to achieve justice for those affected. Please call anytime we can help you help them.