I have a tax law question that i need help with.?

I've got a tax law research project, and I need to know some of the consequences of the situation so i can research it further. I was wondering if anyone can point me in the right direction so I can get a running start. Thanks for replies!

Our client, Mary, wanted to add an extension to her home. She hired an architect

who drew plans and specifications that were given out to contractors for bids. The bids

ranged from 40,000. to 55,000. She hired Tony who had bid 42,000. and signed a

contract to do the job at that price with payments in installments tied to progress on the


Tony started out well but then became totally unreliable. In fact, after doing the

demolition and approximately half of the framing he just stopped coming. Try as she

might, Mary could not get Tony to reliably attend to the job. After a year, and payments

to Tony of 23,000, Mary finally had enough. She formally fired Tony and hired another

Contractor to finish the original job. Finishing the job cost an additional 38,000 for a total

cost of 51,000, instead of the 42,000 she had originally agree to.

Question Presented:

Are there any tax consequences from the contract, Tony’s failures to complete,

and the need to hire a replacement contractor to finish the job for a higher than contract


What if Tony had in fact committed the crime of Fraud as that is defined in State

Law in obtaining and executing the contract?

What would the tax effect be of suing Tony and recovering contract damages for

breach of $9,000. Compensatory and $50,000. Punitive damages.


Thank you guys for the responses, however, each of the questions above have elaborate responses in the field of tax law. The answer does not include whether she will win the suit, but only what the tax effect would be assuming she had.

2 Answers

  • ?
    Lv 5
    9 years ago
    Favorite Answer

    There are not tax consequences unless she works out of her home and then she could count the overages if it was business related upgrades. If she sues, it will be a long drawn out case that will end up costing more than you want to pay and if he is a bum, she still may end up with nothing.

  • 9 years ago

    If she receives damages they will be taxable. Just doing construction on your home only changes your basis.

    This is a tax forum. If you want more law based answers go to a law forum.

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