Hello,
Back in 2009 I purchased house from a bank and found out that the bank didn't disclose a property tax refund check they received prior to escrow closing that I was entitled to part of it. Basically, they had to refund me about $1000 that they overcharged me. I was ignored by everyone and ended up suing them and became a class representative in a class action lawsuit. Finally in 2017 there was a settlement in which the bank agreed to pay about $250,000 total towards a settlement fund. The law firm received the 250K check in Jan 2017. The law firm got about $100K, there were some other fees, and admin costs of 40K, and I got a $3,500 as enhancement reward for being the class representative. I also got a $600 as my part of the fund for my share. That is I got $600 of the $1000 owed to me.
Last week I received in the mail a 1099-MISC with box 3 showing other income of $250,000.
If I just enter this 1099 into my tax return, it would yield more than $110,000 in tax liability...
Clearly the logical way is that I got $3,500+$600 - $1000 which is the basis here so about $3,100 as income. I totally ignore here the 8 years of lost interest on my $1000. Also, not sure how to quantify all my time spent, miles driven to depositions, etc as expenses incurred by me during this long process.
How do I enter this into my tax return without getting an IRS Audit, and all the hustle that would come with it.
Sorry for the lengthy note.