Tax
Nov. 17, 2025
Are false imprisonment settlements taxable?
If you're falsely imprisoned but not exonerated, your legal recovery may be taxable --highlighting a peculiar gap in how the tax code treats lost freedom.
Robert W. Wood
Managing Partner
Wood LLP
333 Sacramento St
San Francisco , California 94111-3601
Phone: (415) 834-0113
Fax: (415) 789-4540
Email: wood@WoodLLP.com
Univ of Chicago Law School
Wood is a tax lawyer at Wood LLP, and often advises lawyers and litigants about tax issues.
If you are wrongfully convicted of a crime, exonerated and then
receive a legal settlement, the federal tax code provides that your legal
settlement will be tax free. There are some definitional niceties that need to
be satisfied, as often is the case under the tax code. But in general, if you
are convicted of a crime and later exonerated, any settlement money you receive
as a result is protected from taxes by federal law.
But what if you were...
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