It's tax time again!

Well, not for most of us. But if you filed for an extension back in April, you're probably working on your taxes about now.

That's the situation facing Ron, who sent me an e-mail to say he is almost 72 and has done his own taxes for more than 40 years without any problems … until this year.

That's when Ron submitted a claim in a class-action lawsuit against an insurance company, because he felt the company had fraudulently offered and manipulated an original and a replacement policy, costing him several thousand dollars.

Ron wrote that he was surprised to receive two checks relating to the settlement, totaling about $15,000. But with those checks, he received two 1099 tax forms showing the entire amount of the settlement as "miscellaneous income."

"The bottom line is, I feel there is absolutely no question that I suffered significant loss of value/premiums … reflected by the class-action lawsuit, but finding a way to establish that, AND THEN DETERMINING HOW TO SHOW THAT LOSS AS AN OFFSET TO 1040 LINE 21 (misc. income) has proved impossible," Ron wrote. "I've searched for hours on the Internet for suggestions, both in 'general', and also specifically pointing at this (lawsuit), all to no avail."

He wrote that, when he received the checks, no information was provided regarding how the settlement awards were determined, or how to account for them on a tax return. But he doesn't think it's fair for the IRS to consider all of the settlement money as miscellaneous income.

"I have tried to take a 'fair and rational' view of what I consider to be losses and/or inappropriate policy 'charges,' and come up with a GUESS that (the company) cost me somewhere around $10,000 due to fraud and/or mismanagement," Ron wrote. "Can you point me to any online resources that would help me to determine my 'loss,' and also, how to document my loss and include it in the 2008 taxes to offset the 'misc income'?"

For help with Ron's question, I contacted David Sloan and Robert Lunt, tax attorneys for VanCott Bagley in Salt Lake City.

In an e-mailed response, David and Robert wrote that questions like Ron's come up frequently, and the tax treatment is determined under what is known as the "origin of the claim" doctrine. That doctrine considers claims made in a lawsuit and taxes the proceeds based on what they were intended to compensate for or to replace.