The federal change also applies to California information reporting. For information reporting purposes, the change applies for punitive damage payments made after Aug. 20, 1996. 17131 follows the federal law. Punitive damages have always been taxable, but those related to physical injury or illness typically were not reported on information returns in the past. According to the state Franchise Tax Board, punitive damages as well as damages awarded in non-physical injury cases do not qualify as compensation for injury or sickness.
Punitive damages are a penalty based on misconduct.
Therefore, all punitive damages, even those related to physical injury or sickness, are included in gross income and must be reported in accordance with 1099 information reporting requirements. Information returns are required to be filed annually with the Franchise Tax Board and Internal Revenue Service. Individuals, partnerships, corporations or other organizations engaged in a trade or business in California may have a requirement to report payments made in the course of their business. Mandatory fee arbitration rules have been changed The bar board of governors voted to amend the guidelines, minimum standards and forms for mandatory fee arbitration. The rule changes require attorneys to notify clients of the right to arbitrate through the Mandatory Fee Arbitration program before initiating arbitration through another forum, and parties will have the right to disqualify a mediator as well as an arbitrator upon request.