TAX NEWS - 2010

IRS will take its share: IRS will tax BP payouts from some Gulf oil spill victims

In 2009, W-2 wage earners found out  that the extra $250 in 'stimulus money' that they received was taxable as part of adjusted gross income.

Most recipients of any federal or state unemployment benefits found out that a portion, or a couple thousand dollars, was tax exempt but the remainder of the benefits got taxed as special income. **

In addition, when a beneficiary of unemployment benefits received that extra $25 in stimulus money from President Obama as was clearly noted in any electronic filers account, a subsequent question was attached: 'Do you want to withhold $2.00 for federal income tax?'

In the eyes of the IRS, there are 'no free lunches' and if you get two pieces of bologna, they will take one for themselves; but you'll be allowed to keep the rest of the sandwich intact meaning the sandwich is still 'whole', a word you will hear over and over in the next few weeks.

Therefore, the Internal Revenue Service wants its cut from oil spill victims who receive BP payments for lost wages.

Under IRS current law, BP payments for lost wages are taxable, just like the wages would have been, said the IRS on Friday. Payments for physical injuries or property loss, however, are generally tax free. Payments for emotional distress are also taxable, though medical expenses related to emotional distress are deductible, maybe - depending upon your gross income.

BP officials have agreed to create a $20 billion fund for spill victims, as well as a $100 million fund to support laid-off oil rig workers due to the Deepwater Horizon explosion.

The IRS issued its guidance on Friday to help spill victims realize that taxes would be due just like ordinary income. The agency has posted tax information for oil spill victims on its website and plans to hold forums in seven Gulf Coast cities on July 17th to address tax issues.

Taxpayers and tax preparers will be able to work directly with IRS employees to resolve tax issues, including specific topics related to the oil spill. The IRS will hold the Gulf Coast Assistance Day in four states:

- Alabama: Mobile
- Florida: Panama City and Pensacola
- Louisiana: New Orleans, Houma and Baton Rouge
- Mississippi: Gulfport

In addition, taxpayers with problems related to the Gulf spill will soon be able to reach IRS personnel through an IRS toll-free telephone line. Specially trained IRS personnel will be available to help people with tax questions related to the oil spill. More information will be available about the telephone line.

Says IRS Commissioner Doug Shulman, 'as residents of the region cope with the evolving situation, I want to assure them that the IRS will be doing everything it can to provide tax help to those who need it. We encourage anyone who has an issue with the IRS to contact us and explain their hardship and we will work with them to find a solution.'