I received a check from a oil company for spilling oil on my river/property. Basically, a settlement was offered for the impact on property and the nuisance they caused.

I received a 1099 MISC from them today, with other income listed...do I need to list this as income on my return this year, and thus pay taxes on it?

Thanks in advance!

By the way, this was a paid out of court....there was no lawsuit, this was basically offered so I would not sue.

Thanks!

“do I need to list this as income on my return this year, and thus pay taxes on it?”--->Yes I guess so; oil royalties are usually reported on 1099-MISC form. Thepayer sends one of the copies of 1099 MISC to you and the IRS respectively. In general, you need to report your oil royalty income as ordinary income subject to to=your marginal tax rate on 1040 Sch E line 3. Since you have the oil royalty income that is not subject to tax withholding, you may need to make estimated taxes on the oil royalty income so that you can avoid penalties you would otherwise incur for underpaying your taxes.

It isn't royalties, though, it is a nuisance payment from an environmental disaster

“I received a 1099 MISC from them today, with other income listed...do I need to list this as income on my return this year, and thus pay taxes on it?”----->No; you will not be required to pay income tax on the payment received from the oil company for damages sustained due to loss of property value. the payment will not be considered income for tax purposes. However, you must reduce your basis in the property in the amount you receive. For example, assume that you purchased the property for $100,000 in 2009. Due to the oil spill, the estimated property value is now only $70,000. The company gives you $20,000 for damages caused by the Oil Spill. Your basis in this property is now $80,000, $100,000-$20,000=$80,000. You also may not deduct losses due to damages sustained by the oil spill as you received payment from the oil company or your insurance company ( if applicable) that was equal to or greater than the amount of estimated losses.

Thanks! Will it matter whether its for property damages or nuisance and trespass? It may be the latter

“ Will it matter whether its for property damages or nuisance and trespass?”----> I guess so; a casualty loss can result from the damage, destruction or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake or even volcanic eruption. A casualty does not include normal wear and tear or progressive deterioration. Please visit the IRS website for further info. Here; Publication 17 (2010), Your Federal Income Tax