The IRS today released an advance version of Announcement 2016-25 concerning the tax treatment of payments for relocation and cleaning expenses made to individuals because of a natural gas leak in the Aliso Canyon area of southern California.
The gas leak was discovered in October 2015, and was sealed in February 2016. To address the health symptoms experienced by residents of the area where the gas leak occurred, the gas company was directed (either by the Los Angeles County public health department or by court orders) to offer temporary housing to affected residents or to pay or reimburse them for relocating and for other expenses for a period from November 2015 through May 2016. These payments included amounts to cover hotel expenses, meal reimbursements, expenses of staying with family or friends, expenses of renting another home, certain mileage or alternative transportation expenses, cleaning expenses, and air filtration and purification expenses.
Announcement 2016-25 [PDF 160 KB] explains that existing guidance does not specifically address the tax treatment of the expenses or reimbursement payments made to residents affected by the gas leak. Thus, today’s release clarifies that the IRS will not assert that residents of the area affected by the gas leak must include in gross income the payments or reimbursements made to them by the gas company.
However, if the gas company paid the expenses for persons affected by the gas leak to stay with family or friends (at a rate of $150 per day), the IRS announcement states that the family and friends who received such payments generally must include these amounts in their gross income—unless the amounts are 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 tax year).
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.