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Friday July 29, 2016

Washington News

Washington Hotline

Natural Gas Disaster Tax Relief

In Announcement 2016-25; 2016-31 IRB 1, the IRS announced that it will exclude most payments to residents affected by the Aliso Canyon natural gas leak.

Aliso Canyon was originally an oilfield developed by J. Paul Getty. After the oilfield was depleted, it was sold and is currently used by Southern California Gas Company (SoCal Gas) for underground storage of 86 billion cubic feet of natural gas. The area now is a northern Los Angeles suburb with thousands of residents.

On October 23, 2015, SoCal Gas discovered a natural gas leak on well SS25, which was initially drilled in 1953. The well casing and wellhead failed to contain the pressurized natural gas.

Area residents reported headaches, nausea and nosebleeds. About 2,500 households were temporarily relocated until Feb. 18, 2016, when California state officials stated that the leak was plugged.

Because many residents received compensatory payments from SoCal Gas for their relocation costs, the IRS excluded from taxable income most SoCal payments during the period from November 19, 2015 to May 31, 2016. The excluded amounts include the following:
  1. Hotel expenses, including meal allowances.
  2. Payments to family or friends for room and board at $150 per day.
  3. Home rental costs for alternative housing until May 31.
  4. Mileage for transporting children to schools from the temporary location.
  5. Home and vehicle cleaning expenses related to the natural gas leak.

Residents who were relocated are permitted to exclude all of these payments from taxable income. However, family and friends who received any SoCal Gas payments will be required to report them as taxable income to the extent they exceed the 14 day exclusion under Sec. 280(A).

Published July 22, 2016

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