Averi A. Niemuth

By Averi A. Niemuth and Van U. Donkersgoed Settling a legal dispute may bring closure to the parties involved, but it does not necessarily resolve the tax consequences. A recent U.S. Tax Court decision, Eiler v. Commissioner, is an important reminder that the IRS is not bound by how parties characterize payments in a settlement agreement. Instead, courts look to the underlying claims that gave rise to the payment—a long-established tax principle known as the origin-of-the-claim doctrine.