The Costa unit of Carnival Cruises has offered the physically uninjured passengers about $14,460 (USD) each to compensate for lost baggage and the emotional trauma from the incident. Even though the accident happened in Italy, every U.S. citizen and permanent resident has to report worldwide income. Damages for physical injuries are tax-free, but emotional injuries are not clearly tax-free.
For full article see Wills, Trusts & Estates Prof Blog: Tax on Shipwreck. See also, Robert W. Wood, IRS To Collect on Italian Cruise Ship Settlements, Forbes, Jan. 28, 2012.
- Tax on Shipwreck (lawprofessors.typepad.com)