In a post earlier this month, I wrote about the tax consequences of confidentiality clauses in settlement agreements after reading about the issue in Trial Briefs from the Illinois Bar's Section on Civil Practice and Procedure. Now I see there's another article about the issue, this time in Trial magazine.
In "Avoiding the confidentiality tax bite," Randall O. Sorrels and Neel Choudhury have a number of practical tips for dealing with confidentiality agreements in settlement agreements, including these:
- If possible, don't agree to the confidentiality agreement at all;
- If a confidentiality agreement is necessary, specifically state in the settlement papers any amount the defendant paid as consideration;
- Even better, and assuming it's true, get the defendant to state expressly that nothing was paid for confidentiality; or,
- Obtain a private IRS ruling.
Unfortunately, the article's not available online.* Since it includes explanations of these points plus lots more, be sure to look it up if you're dealing with the issue.
*Correction, the article is available online to ATLA members. Go to the June 2006 issue of Trial and sign in. In addition, a reader emailed me a link to a slighter longer version of the same article at the Houston Business and Tax Law Journal: "Plaintiffs' Attorneys Beware: Little Known Tax Consequences Associated with Confidentiality Provisions" (pdf).