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Insurance settlement 1099-MISC for attorney malpractice

Level 3

Client received substantial settlement from attorney's liability policy for failure to file timely responses in a lawsuit naming client and his single member AZ LLC as defendants. Client had substantial losses as result of attorney errors and also a $2mil judgment. Judgment was settled in client's Ch. 13 proceedings but insurance issued check and 1099 to LLC only.

LLC was primarily a real estate investment operation that reported income and expenses on rental properties and capital gains on client's 1040 Sch. E's with minimal activity on Sch. C.

Where should the LLC's 1099 settlement amount be reported? Sch. C, E, Other Income? 

And is it adjustable by carryover capital losses due to seizures of LLC assets by plaintiff prior to Ch. 13 and insurance settlements?



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