The IRS today released an advance version of Announcement 2016-25 concerning the tax treatment of 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).
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