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Assumptions and Disclosures

1. Scope. This estimate models a taxable recovery whose attorney fees are not deductible to the plaintiff, the situation for claims outside IRC §62(e). It does not apply to employment, discrimination, whistleblower, or False Claims Act recoveries, where the plaintiff deducts attorney fees above the line.
2. Educational purpose. Eastern Point Trust Company provides this estimate for modeling purposes only. It is hypothetical, it does not constitute a contract, and it is not legal, tax, accounting, or investment advice.
3. Data privacy. No data modeled here is saved on our servers located in Virginia.
4. No guaranteed outcome. Actual tax results depend on the specific facts of the matter, including the pleadings, the settlement agreement, the allocation of proceeds, and the claimant's individual circumstances. The figures shown are estimates and carry no guarantee.
5. Federal calculation. The federal figures apply the 2026 ordinary-income rate schedule published by the IRS in Revenue Procedure 2025-32, Section 4.01, Tables 1 through 4. The model treats the recovery as ordinary income stacked on top of the claimant's other taxable income.
6. Net investment income tax. The interest portion is part of the taxable recovery entered, not an additional amount. The model applies the 3.8 percent net investment income tax under IRC §1411 to that interest portion only, and assumes modified adjusted gross income above the applicable threshold ($200,000 single, $250,000 joint, $125,000 married filing separately). Prejudgment and postjudgment interest is investment income in every case. If the recovery includes other investment or securities components, capital gains, rents, royalties, or similar items, those may carry additional net investment income tax and must be reviewed separately with an outside tax advisor; they are beyond the scope of this model.
7. Additional Medicare tax not modeled. The 0.9 percent additional Medicare tax applies only to wages and self-employment income, not to investment income, and is not modeled here. The model's scope excludes wage-replacement recoveries, which fall within IRC §62(e). A recovery that is self-employment income should be reviewed separately.
8. Alternative minimum tax not modeled. The model does not compute the alternative minimum tax. For an ordinary-income recovery, the regular tax at the 35 and 37 percent rates exceeds the tentative minimum tax at 26 and 28 percent, so the AMT generally adds nothing, and the former attorney-fee AMT exposure ended when miscellaneous itemized deductions became permanently non-deductible. An accurate AMT analysis depends on the taxpayer's full return, including preference items, and should be performed separately where those are present.

Contents/Inputs/Summary/Tax Reporting/Investment/Calculation/Learn More/Disclosures

9. State and local rates are unvalidated. The user enters one state rate and one local rate, which the model applies as a flat combined percentage to the taxable amount. It does not validate these rates, apply graduated state brackets, or compute an actual state tax base — states define and tax income differently, so a single blended rate is a planning placeholder only. The optional state and city/county lookup is a convenience starting point drawn from published reference rates; it is not validated or updated in real time. The actual state and local tax must be confirmed with the user's own tax advisor.
10. State capital-gains treatment. The combined state and local rate applied to investment gains, including in the 10-year investment illustration, is a simplification. States vary widely: many tax capital gains as ordinary income, some impose no broad-based income tax, and others apply their own exclusions, surtaxes, or special rules. The applicable state treatment should be confirmed separately with a tax advisor.
11. Attorney-fee treatment. The attorney contingent fee applies to the entire gross recovery. The model splits it in proportion to the double-tax portion and the remaining portion: the double-tax share reduces the taxable recovery and the remainder reduces the remaining portion. The model treats the attorney contingent fee as non-deductible to the plaintiff, consistent with the permanent disallowance of miscellaneous itemized deductions under IRC §67(g) for claims outside IRC §62(e).
12. Litigation-expense treatment. Litigation expenses entered here are the total advanced case costs that counsel is reimbursed for out of the recovery for the entire matter, separate from the attorney contingent fee. Where a recovery has both a double-tax portion and a remaining portion, the model allocates these expenses by the double-tax portion's share of the total gross recovery. The allocable portion is used in the double-tax analysis; the balance is shown against the remaining portion. For a taxable claim outside IRC §62(e), the model treats the allocable expenses as non-deductible to the plaintiff: advanced costs are loans to the client, so the reimbursement is the plaintiff's own litigation expense, and that expense is a production-of-income cost under IRC §212 that IRC §67(g) disallows as a miscellaneous itemized deduction. The plaintiff therefore bears tax on the allocable portion absent the trust, and the model removes it from the plaintiff's taxable income through the trust on the same basis as the attorney fee. The allocable amount is capped at the taxable recovery less the attorney fee so that net proceeds are not negative.
13. Trust treatment. The model assumes the attorney-fee portion and any litigation-expense portion are intended to be removed from the plaintiff's federal and state taxable income through the Plaintiff Recovery Trust. That intended tax treatment is not automatic and is not guaranteed: it depends on the trust being properly formed and administered, on the claims being validly assigned, and on the IRS and any applicable state authority respecting that treatment. That assumption holds only if the plaintiff transfers the claims into the trust in time. The plaintiff must assign the claims to the Plaintiff Recovery Trust before there is a substantial recovery of the claims or an agreement to settle them. Claims not transferred before that point are ineligible for the Plaintiff Recovery Trust, and the benefit shown in this estimate does not apply to them. State treatment depends on state conformity and is not verified here.

Contents/Inputs/Summary/Tax Reporting/Investment/Calculation/Learn More/Disclosures

14. Base income basis. The base income figure is the household's total annual taxable income for the filing status selected, and it excludes the recovery. It is a full-year amount, either the estimated total for the current year or the total from last year, and not the income earned so far this year. The model stacks the recovery on top of this figure to determine which tax brackets apply to the recovery. Using a prior-year figure against the 2026 schedule is an approximation.
15. PRT Charitable Contribution. The PRT Charitable Contribution shown equals 3 percent of the taxable recovery with a $5,000 minimum and is illustrative.
16. Investment opportunity illustration. The 10-year investment figures are hypothetical and illustrative only. The model invests the net PRT benefit as a year-zero lump sum, compounds it at a flat 7 percent nominal annual return for 10 years, and taxes the entire gain once at a single sale in year 10. Past performance is no guarantee of future results, and the 7 percent rate is a planning assumption, not a forecast; actual returns vary and can be negative. The gain is taxed as a long-term capital gain at the rate produced by stacking it on the base income under the 2026 long-term capital-gains brackets (Revenue Procedure 2025-32), plus the combined state and local rate entered above, plus the 3.8 percent net investment income tax under IRC §1411 to the extent the income for that year exceeds the threshold ($200,000 single and head of household, $250,000 joint and qualifying surviving spouse, $125,000 married filing separately). The model treats the entire return as deferred appreciation realized at sale and does not separately model annual dividends. Returns are nominal; investment fees, advisory costs, and state conformity differences are not modeled. This illustration is educational and is not investment advice.
17. Characterization controls. The IRS is not bound by the parties' labels. The origin of the claim and the allocation of proceeds determine the tax character of a recovery.
18. Intellectual property and trade secret. This model, its functionality, and the underlying Plaintiff Recovery Trust methodology are the trade secret and intellectual property of Eastern Point Trust Company, protected under applicable federal and state trade secret law. Eastern Point Trust Company reserves all rights. No part of the model, its functionality, or the methodology may be reproduced, reverse engineered, disclosed, or used to develop a competing product or method without the prior written consent of Eastern Point Trust Company.