Trial Practice Corner: Avoid the IRS on Confidentiality Provisions

By Robin Frazer Clark

How did Dennis Rodman, former teammate of Michael Jordan on the Chicago Bulls, known for his defensive prowess and proliferation of tattoos, have a hand in the IRS decision that ultimately held confidentiality provisions to be taxable? Was Rodman as much as a lightning rod in tax court as he was on the basketball court?

In Amos v. Commissioner of Internal Revenue, No. 1339-01, (U. S. Tax Ct., December 1, 2003), the Federal Tax Court held that confidentiality provisions in releases of personal injury claims are of the nature of compensation for nonphysical injuries and, therefore, are subject to Federal taxation laws. This unfortunate Tax Court opinion stems from a personal injury suit filed by Plaintiff Eugene Amos, Jr. against NBA Celebrity, Dennis Rodman, for injuries Mr. Amos allegedly received during a Minnesota Timberwolves and Chicago Bulls basketball game when Mr. Rodman landed on a group of photographers, set up just off the court, and twisted his ankle. Mr. Rodman then kicked the group of photographers, of which Mr. Amos was one. Mr. Amos filed suit against Mr. Rodman for bruising to the photographer's groin area. Settlement negotiations ensued and, ultimately, resulted in a settlement agreement between the parties in the amount of $200,000.00. A mutual release, entitled "CONFIDENTIAL SETTLEMENT AGREEMENT AND RELEASE," was signed by both parties. This release contained a confidentiality provision that read, in part, as follows...

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