The Verdict- Woman Falsely Arrested vs. Bank
By Ric EdelmanThe answer is yes, she does have to pay taxes. According to the judge, the income is taxable because she had no physical injuries as a result of her confinement. Her complaint against the bank included such nonphysical injuries as "emotional distress, mortification, humiliation, mental anguish and damage to reputation." Had she had physical injuries, then the money would have been tax-free.