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More victims are coming forward to tell their stories of sexual abuse at the hands of Jeffrey Epstein. As the multimillionaire faces sex trafficking charges (for which he could be in prison for as long as 45 years), many of the women who were lured into unwanted sexual encounters as minors are seeking legal counsel to protect their rights and seek justice. For those who file civil suits, there is an important law to know about, because it could greatly impact the money they would ultimately bring home after tax time.

Any potential settlements with Epstein may be taxable under Trump’s tax reform law. According to Section 162(q) of the tax code, “No deduction shall be allowed under this chapter for — (1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or (2) attorney’s fees related to such a settlement or payment.”

In other words, if there is a non-disclosure agreement involved, the people involved in these potential cases would not be able to take a tax deduction on their payment, settlement, or legal fees. That means that the plaintiffs who receive a monetary recovery will not be able to deduct attorney fees. Instead, they will need to pay taxes on the full settlement amount before attorney fees are taken. After paying their lawyers and the IRS, the victims will have substantially less money than their original settlement offer. 

However, foregoing a non-disclosure agreement means that the details of the harassment and the lawsuit could be made public, which creates the potential to destroy careers and lives. 

At the end of the day, we hope they throw the book at Epstein and that every one of his victims receives justice. As for the new tax law that would require Epstein to pay the settlement amounts, legal fees, and then taxes, no one feels bad for him. Unfortunately, his victims will also face tax consequences with their settlement — when they truly deserve every dime their attorneys obtain for them. 

Is there anything plaintiffs can do if they receive a settlement? One option is to spread the settlement money over time to avoid an immediate tax burden. The best next step would be to speak with an experienced settlement planner to discuss all possible options.

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