In a lawsuit, ABC, inc. won $30,000 in damages against the defendant for lost profits. What are the tax consequences, if any, for ABC, inc.?
1) There are no tax consequences because tort damages are excluded from gross income.
2) ABC, inc. must report $30,000 in gross income as lost profits are not excluded from gross income.
3) There are no tax consequences because business damage awards are excluded from gross income.
4) ABC, inc. must report $30,000 in gross income because this is a return of capital.