IRS Announcement 2016-25 confirms that residents who were affected by a natural gas leak at California’s Aliso Canyon storage field are getting tax relief. They can exclude from their federal income taxes the payments or reimbursements they received from Southern California Gas Company (SoCal Gas). Over four months, more than 97,100 metric tons of methane leaked from a single well into California’s sky. Thousands of families were displaced and forced to relocate.
Southern California Gas Company (SoCal Gas) discovered the natural gas leak on October 23, 2015, and it was not sealed until February 18, 2016. Residents complained of numerous adverse health effects from the leak, including nausea, dizziness, vomiting, shortness of breath, and headaches. Because the gas leak caused significant symptoms for area residents, the Los Angeles County Department of Public Health directed SoCal Gas to offer free, temporary relocation to affected residents. SoCal Gas was required to pay for or reimburse residents for relocation and cleaning expenses from November 19, 2015, through May 31, 2016. These expenses included:
- Hotel expenses, including meal reimbursement ($45 per day for an individual age 18 and older; $35 per day or $25 per day for a child based on age), mileage reimbursement, parking expenses, pet boarding fees, internet fees, electric vehicle charging fees, and laundry fees;
- Expenses of staying with friends or family at the rate of $150 per day, and mileage reimbursement;
- Expenses of renting another home for a lease term (including a lease term extending beyond May 31, 2016) as approved by SoCal Gas, including expenses of housewares, appliances, pet fees, furniture rental, utility fees, and moving expenses;
- Mileage allowances or alternative transportation for a resident whose child or children attended the relocated area schools until the date the resident exited the relocation program. If, however, a resident enrolled a child in a school outside of the affected area, SoCal Gas must pay the mileage allowance until the child no longer attends the reenrolled school or the school year ends, whichever occurs first;
- Expenses of cleaning the interior of an affected individual’s home prior to returning home according to protocols established by the Los Angeles County Department of Public Health;
- Air filtration and purification expenses;
- Expenses of cleaning residue from the exterior of an affected individual’s home, outdoor fixtures, and exterior furniture and appliances;
- Expenses of a vehicle detailing treatment; and
- Other expenses not specifically described in the relocation plan based on SoCal Gas’s evaluation of the expenses.
The tax code generally says that almost everything is income and must be reported. So the normal presumption would be that these items would be taxed. And the IRS announcement admitted that the existing tax authorities did not make clear how tax questions that were being raised by the impacted families should be answered. Fortunately, though, the IRS announced that it would not require taxes on these payments or reimbursements.
However, the announcement states that family and friends who received payments for housing affected area residents must include these payments in gross income under Section 61, unless these amounts are properly excludable from gross income under Section 280A (relating to the exclusion for rental income from a taxpayer’s residence for less than 15 days during the taxable year).
For alerts to future tax articles, email me at Wood@WoodLLP.com. This discussion is not legal advice.
via The Tax Lawyer http://ift.tt/2a06DLy