In IRS Announcement 2016-25, the IRS confirmed that residents who were living near and affected by a natural gas leak discovered at Southern California Gas Co.’s Aliso Canyon storage field may exclude from gross income amounts that the company paid or reimbursed for some relocation and cleaning expenses incurred between November 19, 2015, and May 31, 2016.
For nearly four months, the northern Los Angeles community of Porter Ranch suffered from the largest natural gas leak in U.S. history. More than 7,000 families were displaced from their homes and forced to relocate. Schools in the area were also closed. This announcement came at the urging of Congressman Brad Sherman (D-Porter Ranch), who worked with the Treasury Department and the IRS over the last six months to reach this result.
On October 23, 2015, Southern California Gas Company (SoCal Gas) discovered a natural gas leak at the Aliso Canyon storage field, which was sealed on February 18, 2016. Residents of nearby areas complained of numerous adverse health effects as a result of the gas leak, including nausea, dizziness, vomiting, shortness of breath, and headaches. Because the gas leak caused significant symptoms for area residents, the Los Angeles County Department of Public Health directed SoCal Gas to offer free, temporary relocation to affected residents. Pursuant to the directive and subsequent court orders, SoCal Gas is required to either pay on behalf of or reimburse affected residents for certain relocation and cleaning expenses incurred generally for the period beginning November 19, 2015 through May 31, 2016. These expenses include:
º Hotel expenses, including meal reimbursement ($ 45
per day for an individual age 18 and older; $ 35
per day or $ 25 per day for a child based on age),
mileage reimbursement, parking expenses, pet boarding
fees, internet fees, electric vehicle charging fees,
and laundry fees;
º Expenses of staying with friends or family at the
rate of $ 150 per day, and mileage reimbursement;
º Expenses of renting another home for a lease term
(including a lease term extending beyond May 31,
2016) as approved by SoCal Gas, including expenses
of housewares, appliances, pet fees, furniture rental,
utility fees, and moving expenses;
º Mileage allowances or alternative transportation
for a resident whose child or children attended the
relocated area schools until the date the resident
exited the relocation program. If, however, a resident
enrolled a child in a school outside of the affected
area, SoCal Gas must pay the mileage allowance until
the child no longer attends the reenrolled school
or the school year ends, whichever occurs first;
º Expenses of cleaning the interior of an affected
individual’s home prior to returning home according
to protocols established by the Los Angeles County
Department of Public Health;
º Air filtration and purification expenses;
º Expenses of cleaning residue from the exterior of
an affected individual’s home, outdoor fixtures,
and exterior furniture and appliances;
º Expenses of a vehicle detailing treatment; and
º Other expenses not specifically described in the
relocation plan based on SoCal Gas’s evaluation of
the expenses.
Questions have been raised concerning the taxability of these expenses paid on behalf of or as reimbursements to affected area residents. Existing guidance does not specifically address these questions.
The IRS will not assert that an affected area resident must include these payments or reimbursements in gross income. However, family and friends who received payments under the relocation plan for housing affected area residents must include these payments in gross income under section 61 of the Internal revenue Code unless these amounts are properly 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 taxable year).
TAXLITIGATOR - Tax Controversy (Civil & Criminal) Report 
Leave a Reply