IRS Help for Gulf Oil Spill Victims
Posted by Dean Alexander on Fri, Jul 16, 2010
The IRS is preparing to provide help to people with tax problems related to the oil spill in the Gulf of Mexico. BP is beginning to issue payments as compensation for lost wages or income, property damage, or physical injury. People receiving these payments may have questions as to whether these payments are subject to taxes or not. If you are benefiting from any of these payments, it might be a good time to foresee any future tax issues. The IRS has announced a Special Assistance Day on Saturday, July 17th from 9 a.m. to 2 p.m. local time at the following Centers in seven different cities:
1110 Montlimar Drive, Mobile, Alabama
651-F West 14th St., Panama City, Florida
7180 9th Ave. North, Pensacola, Florida
2600 Citiplace Centre, Baton Rouge, La.
423 Lafayette St., Houma, La.
1555 Poydras St., New Orleans, La.
11309 Old Highway 49, Gulfport, Miss.
It is good to know that the IRS is willing to provide help to those who are already experiencing a very difficult situation. At the Centers you will have the opportunity to work with IRS employees to provide tax help and resolve any tax issues you may have related to the oil spill. You will be able to ask questions about your specific tax situation and possibly have faster tax resolution to your tax problem. The IRS has also opened a toll-free line for people with tax problems due to the situation in the Gulf: 866-562-5227. You can call this number on weekdays from 7 a.m. to 10 p.m. and also on Saturday, July 17th from 9 to 2 CT.
If you have or anticipate a difficult tax problem related to the Gulf disaster and you need tax help, don’t hesitate to take advantage of these opportunities to resolve or foresee any tax issues. It is better to take care of things before they become more complicated.
Basically, it is anticipated the tax problems will evolve around three issues:
1. Property damage tax issues
2. Payments in lieu of lost wages
3. Payments for sufferings
First if you get compensated for the property damage you incurred the tax problem that you may be facing is the following question: do I recognize gain or loss on payments of damage? The answer depends on what is called the tax basis in the property. For starters think of tax basis as the cost of the property. If you are compensated more than your cost then you have a taxable income.
Now let us instead of saying cost we use the term “basis” The term tax basis means simply modified cost. If you benefited from having the property and depreciated the property then the IRS will not use the cost but the cost minus the depreciation that you took in prior years and that is what they call basis.
The second issue that inevitably will come about as a result to the spill in the Gulf is compensation for lost income. This compensation is taxable because it is considered as wages that would have been taxable in way had it been earned without the Gulf spill.
Third type of compensation which we may encounter and you may need tax help on is the compensation damage as a result to some physical damage or mental anguish. This type is not taxable compensation.