FoxSports: NFL, players close to settlement

[Irving Cowboy]

NFL, players close to settlement
UPDATED AUG 29, 2013 1:32 PM ET
PHILADELPHIA (AP)

The NFL and more than 4,500 former players want to resolve concussion-related lawsuits with a $765 million settlement that would fund medical exams, concussion-related compensation and medical research, a federal judge said Thursday.

The plaintiffs include at least 10 members of the Pro Football Hall of Fame, including former Dallas Cowboys running back Tony Dorsett. They also include Super Bowl-winning quarterback Jim McMahon and the family of Pro Bowl linebacker Junior Seau, who committed suicide last year.

Many former players with neurological conditions believe their problems stem from on-field concussions. The lawsuits accused the league of hiding known risks of concussions for decades to return players to games and protect its image.

The NFL has denied any wrongdoing and has insisted that safety has always been a top priority.

Senior U.S. District Judge Anita Brody in Philadelphia announced the proposed settlement Thursday after months of court-ordered mediation. She still must approve it at a later date.

The settlement likely means the NFL won't have to disclose internal files about what it knew, when, about concussion-linked brain problems. Lawyers had been eager to learn, for instance, about the workings of the league's Mild Traumatic Brain Injury Committee, which was led for more than a decade by a rheumatologist.

In court arguments in April, NFL lawyer Paul Clement asked Brody to dismiss the lawsuits and send them to arbitration under terms of the players' contract. He said that individual teams bear the chief responsibility for health and safety under the collective bargaining agreement, along with the players' union and the players themselves.

Players lawyer David Frederick accused the league of concealing studies linking concussions to neurological problems for decades.

Brody had initially planned to rule in July, but then delayed her ruling and ordered the two sides to meet to decide which plaintiffs, if any, had the right to sue. She also issued a gag order, so it has been unclear in recent weeks whether any progress was being made.

The lawyers were due to report back to her Tuesday, but Brody instead announced in court files Thursday that the sides has reached a proposed settlement.

In recent years, a string of former NFL players and other concussed athletes have been diagnosed after their deaths with chronic traumatic encephalopathy, or CTE. Those ex-players included Seau and lead plaintiff Ray Easterling, who filed the first suit in Philadelphia in August 2011 but later committed suicide.

About one-third of the league's 12,000 former players have joined the litigation since 2011. They include a few hundred "gap" players, who played during years when there was no labor contract in place, and were therefore considered likely to win the right to sue.

The timing of the proposed settlement allowed the NFL to drop the issue from the national conversation before the start of the new season.

All 32 clubs were scheduled to play their final exhibition games Thursday night, in preparation for the start of the regular season next week. The first real game is next Thursday, with the reigning Super Bowl champion Baltimore Ravens playing at the Denver Broncos.

Concussions -- and the former players' lawsuits -- had become a main theme of recent NFL seasons, with players, coaches and league officials all forced to address the topic repeatedly, especially as new plaintiffs came forward on nearly a weekly basis. It was the sort of public relations distraction the league has become skilled at avoiding -- and the easiest way to set this topic aside, of course, was to have the court cases resolved.

 

[JBond]

Tax Aspects Of The NFL Settlement Payments


Have you ever wondered what your brain is worth? Well, if you’re a retired NFL football player, the Blue Book value has been set: your cognitive capacity is worth a cool $150,000.

Earlier today, the NFL agreed to pay out $765 million over 20 years to settle a concussion lawsuit brought by nearly 4,500 former players. Pursuant to the settlement, $675 million will go to former players and the families of deceased players who have suffered concussion-caused cognitive injuries, with the remaining amount used to fund medical exams and continuing research. While the payments will vary among the pool of recipients — which includes not only the claimants, but any other retired player as of the date the court approves the settlement as well — the NFL has somehow managed to settle the most high-profile lawsuit in its history for an average of $150,000 per claimant, or a total amount that is approximately .3% of the estimated $200 billion the NFL will earn in revenue of that same twenty year period.

The payouts will apparently be capped based on the particular ailment suffered: If you develop dementia, well, that’s worth a maximum of $3 million to the NFL. If you’re diagnosed with CTE (chronic traumatic encelphalopathy) after your death, your family is eligible for up to $4 million. And lastly, if you are unfortunate enough to develop Lou Gehrig’s disease, your potential payout tops out at $5 million.

All other retired players will be required to take a test to determine if they suffer from neurological issues, but they will not be required to prove that those issues are linked to concussions suffered while playing in the NFL. At that point, the retired players will be paid according to the number of years they played in the league, with the length of career used to estimate the number of blows to the head the player suffered (I’m not making this up). Ironically, no distinction will be made between positions, so a retired punter stands to receive just as much as a retired offensive tackle, assuming they played for the same amount of time.

For the claimants, this settlement puts to rest a tumultuous legal process and allows those retired players currently facing debilitating neurological problems to begin receiving cash payments. But as we know in the tax world, a settlement payment can end up being worth far less than what it’s reported to be if its subject to income taxes. In fact, after Uncle Sam and the states take their cuts, a claimant who receives a $1,000,000 settlement payout could be left with half that amount, and that’s before accounting for legal fees (which the NFL will apparently be paying in this instance).

So will the retired NFL players who receive settlement payments be required to pay tax on the amounts received?

In general, all sources of income are included in taxable income, unless specifically excluded by statute. In search of said exception, we find Section 104(a)(2), which provides that gross income does not include “the amount of any damages received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of physical injuries or physical sickness.

Typically, the crux of fitting a settlement payment within the gambit of Section 104(a)(2) is establishing that a payment was intended to compensate the plaintiff for “physical injuries or physical sickness.” The use of the word “physical” has taken on increased importance in recent years, as physical ailments arising from an emotional genesis – such as insomnia, headaches and stomach disorders – are generally not covered by Section 104(a)(2).

In determining the taxability of a settlement, great pains are often undertaken to determine the “origin of the claim.” For example, if an employee is injured on the job and then terminated, and that employee subsequently sues for wrongful termination, is the original of the claim the physical injury, which would make any settlement payments excludable under Section 104 – or is it the wrongful termination, in which case the settlements would be taxable in full?

While it can often be difficult to determine the origin of a claim, it is clear in the case of the NFL settlement that the retired players have sued in order to be compensated for the physical injuries they suffered throughout their playing career. As a result, the necessary correlation exists to exclude the settlement payments under Section 104.

On a more granular level, those retired players who are not eligible for the higher payouts reserved for specific ailments are required to establish some level of neurological damage in order to be eligible to receive a payment. As a result, the payments should be fully excludable under Section 104(a)(2) due to the relationship between the payments made and the underlying physical damage. The same treatment should clearly extend to those players suffering from ALS or dementia.

For the families of deceased players who receive the $4 million CTE-related settlement, the fact that payment will not be made to the injured party is not problematic, because as long as a legal action has its origin in a physical injury or physical sickness, then all damages flowing from the injury are treated as payments received on account of physical injury or physical sickness whether or not the recipient of the damages is the injured party.

That’s not to say that the retired athletes will be permitted to exclude all of the settlement payments from income, however. Pursuant to Section 104(a), if the taxpayer previously deducted medical expenses related to a physical injury under Section 213, the amount of any settlement payment is taxable to the extent of the previously deducted expenses. Revenue Ruling 75-230 clarifies that unless the settlement agreement specifies how much of the payment is being made to reimburse the recipient for previous medical expenses, then the first dollars of payment will be included in income up to the amount of the previously deducted expenses. This may prove particularly damaging to those former players who have been suffering from serious ailments for years, and may have previously deducted a large amount of medical expenses.

Example: Player A has been suffering from concussion-induced symptoms since retiring from the league. In 2012, Player A sought treatment for his symptoms, and incurred $20,000 of medical expenses. Player A deducted the expenses, of which $8,000 were allowed under Section 213. In 2014, Player A receives a $100,000 settlement payment from the NFL. Despite the fact that the payment was made on account of physical injury, Player A must include $8,000 (the amount of the previously deducted medical expenses) of the $100,000 settlement payment in income. The remaining $92,000 may be excluded.

If, however, the settlement agreement specifically allocates a portion of the payment to previous medical expenses, the IRS will generally respect that allocation, and only that amount will be taxable in the year of receipt.

On the other side, you may be wondering whether the NFL will be permitted to deduct the $675 million of payments it is obligated to make over the next two decades. And while the answer is generally yes under Section 162, in this case it really doesn’t matter, because the NFL – and its $10 billion in annual revenue – is a tax-exempt organization.

http://www.forbes.com/sites/anthonynitti/2013/08/29/tax-aspects-of-the-nfl-settlement-payments/