Taxation of Confidentiality Agreement

Many times a defendant in a case wants a confidentiality agreement.  A value needs to be set or this may create a taxable event for a client.  The U.S. Tax Court has made it clear that a confidentiality clause must be supported by sufficient and clearly stated consideration or the Internal Revenue Service (IRS) can assign any “just or fair amount” as the amount of the consideration involved, and that, in any event, all consideration for confidentiality is taxable income to the recipient. See, for example, Amos v. Commissioner, T.C. Memo. Docket No. 13391-01, 2003-329, December 1, 2003 (tinyurl.com/9d25phz).  The easiest thing is probably to set the value of the confidentiality agreement at $10.00 or so.