The IRS has announced that civilians who received payments from the Defense Department to reimburse expenses or damages caused by the Red Hill fuel spill can exclude those payments from income. (Ann 2023-07, 2023-17 IRB)
Background.
In November 2021, the U.S. Navy detected the Red Hill fuel spill and subsequent contamination of the water system servicing Red Hill and surrounding areas in Oʻahu, Hawaii. In February 2022, the Secretary of the Navy approved emergency and extraordinary expense (EEE) payments to affected civilians. Affected civilians are those civilians who were covered by the evacuation orders prompted by the Red Hill fuel spill.
In 2022, the Defense Department (DOD) made three types of EEE payments to affected civilians: (1) payments to reimburse lodging and meal expenses for affected civilians who didn’t have potable water in their homes and who opted to relocate under the evacuation authorizations; (2) payments to reimburse meal expenses for affected civilians who didn’t have potable water but who opted to remain in their housing; and (3) payments to reimburse certain affected civilians for personal property damage.
Disaster relief.
The IRS has determined that the DOD EEE payments are qualified disaster relief payments that can be excluded from affected civilians’ gross income. The IRS’ announcement also provides the following information for affected civilians:
Haven’t filed yet. Affected civilians who have yet to file their 2022 tax return should not include any EEE payments on their return unless they were also compensated for the same expenses or damages by insurance or otherwise.
Note. The DOD reported EEE payments to recipients on Form 1099-MISC, Miscellaneous Income.
Already filed 2022 return. Affected civilians who have already filed a 2022 tax return reporting EEE payments can amend their return by filing Form 1040-X, Amended U.S. Individual Income Tax Return, to exclude EEE payments that were previously included in income. The IRS accepts both paper and electronically filed Forms 1040-X. Affected civilians
- filing Form 1040-X electronically should include “Red Hill Relief” at the beginning of Part IV, Explanation of Changes.
- filing Form 1040-X on paper should:
- Include “Red Hill Relief” at the top of Form 1040-X. Also, include “Red Hill Relief” at the beginning of Part III, Explanation of Changes, and
- Mail the Form 1040-X to the IRS, Austin, TX 73301-0052.
For more information about disaster relief payments, see Checkpoint’s Federal Tax Coordinator ¶ J-1290
Get all the latest tax, accounting, audit, and corporate finance news with Checkpoint Edge. Sign up for a free 7-day trial today.
