Legal Update – January 29, 2021

Practice Point:  One of the most difficult decisions our injured railroad clients must make is the decision to settle their case or take it to trial.  There are dozens of factors that weigh on this decision, but there is one factor worth addressing that one of our clients and DSM was recently forced to grapple with.


Until 2019, if an injured railroad worker took his/her case to trial and won, and received a money Judgment against the railroad, that money was not taxable.  However, in the case of Burlington Northern v. Loos, the U.S. Supreme Court ruled for the first time that if a railroad worker’s Judgment includes lost wages, those wages are considered “pay for time lost” under the tax code and may be taxed.  On the other hand, if the same railroad worker were to have settled his/her case out of court, the money is not taxable because the tax code allows the railroad and the injured worker to place language in the settlement agreement that none of the funds are “pay for time lost.”  If that sounds like a legal technicality, it is; but it’s an important one because we must now advise all our clients that we can protect money in a settlement from taxation, but we cannot legally shield the money from taxation if the money is paid by a Judgment at trial.  Naturally, this affects the decision to settle the case or try the case.  DSM works hard to advise our clients on the potential tax consequences of settling the case versus going to trial, and we invite the chance to answer any questions on this complex issue.

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