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Gulf oil spill: BP payments for lost income to be taxed

June 25, 2010 |  5:06 pm

Oil spill victims who receive BP payments for lost income will have to shell out money come tax time. Under current law, such payments will be taxed by the Internal Revenue Service, just as normal income is, according to a release posted on the IRS website. Generally, compensation for physical injuries or property loss is nontaxable.

This week, Sen. Mary L. Landrieu (D-La.) wrote to Treasury Secretary Timothy F. Geithner pushing the IRS to advise oil spill victims on how the IRS would treat BP payments. Landrieu wrote that the IRS needed to address whether income checks, property damage payments or personal injury claims from BP would be taxed.

As of June 21, BP has paid $111.2 million to residents along the Gulf Coast for claims and issued 34,400 checks, according to the letter.

Rep. Charlie Melancon (D-La.) introduced a bill Thursday that would exempt recipients of BP money from taxes. “Compensation from BP will help, but during this uncertain time, Louisianans will need to stretch every dollar and should not have to worry about setting aside a portion of the payments for taxes,” he said in a statement.

New information was posted on the IRS website in a question and answer format. The IRS declined to comment Friday, citing documents posted on its website.

For gulf residents who have questions about how the IRS will handle payments from BP, the agency also announced that it will launch a hotline and hold a Gulf Coast Assistance Day on July 17 in seven cities:  Mobile in Alabama; Panama City and Pensacola in Florida; New Orleans, Houma, Baton Rouge in Louisiana; and Gulfport, Miss. 

“This is a very difficult time for many people affected by the oil spill in the Gulf of Mexico. As residents of the region cope with the evolving situation, I want to assure them that the IRS will be doing everything it can to provide tax help to those who need it,” IRS Commissioner Doug Shulman said in a statement.

-Nicole Santa Cruz

Photo:  Fishermen gather April 30 looking for work in the spill's cleanup and protection operations.  Credit: Carolyn Cole/Los Angeles Times