IRS Provides Tax Help, Guidance to Gulf Oil Spill Victims; Special Assistance Day Planned for July 17

The IRS has released some guidance (Information Release 2010-078) this week which explains how BP payments to individuals and businesses for lost income should be treated for tax purposes. Based on current law, BP’s payments for lost income are taxable in the same way as the wages or business income they are replacing would have been treated. The tax law treats compensation for lost wages or business income differently than compensation for physical injury or property loss. Physical injury and property loss payments are generally nontaxable.

The IRS encourages each taxpayer to review their own specific situation with their tax preparers, as each person can have a unique financial circumstance resulting from payments in connection with the oil spill.

The IRS also announced that on July 17 they will be having a Gulf Coast Assistance Day, which will allow taxpayers and tax preparers to be able to work directly with IRS employees to resolve their tax issues. These issues include specific issues related to the oil spill. This program will be located in the following locations:

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

There is also a question-and-answer section on the IRS website at www.irs.gov that deals with questions related to the situation on the Gulf Coast. A special telephone hot-line will soon be up and running with specially trained IRS personnel.

The IRS is encouraging any taxpayers in the Gulf with payment and / or collection issues to contact the agency. The IRS has various ways to help taxpayers under hardship, such as:

• Assistance of the Taxpayer Advocate Service for those taxpayers experiencing particular hardship navigating the IRS
• Postponement of collection actions in certain hardship cases
• Added flexibility for missed payments on installment agreements and offers in compromise for previously compliant individuals now having difficulty paying
• IRS employees will be permitted to consider a taxpayer’s current income and potential for future income when negotiating an offer in compromise
• Accelerated levy releases for taxpayers facing economic hardship

In addition, individuals and businesses can contact their respective States’ Department of Revenue for issues they are having on the State level. For example, the Florida Department of Revenue offers help through their local Service Centers. Affected taxpayers can call their local offices to discuss such options as:

• Stipulated payment plans for taxes due, including unemployment taxes
• Waivers of late filing penalties
• Participation in the Tax Amnesty Program that runs from July 1, 2010 through September 30, 2010

Should you have any questions concerning this Tax Flash, please contact your MarcumRachlin professional.