BP Claims Payments to Be Taxed at Highest Rate


So now we’re told that there will be no tax relief on BP claims payments, because the post-spill Gulf Coast has not been designated as a “presidentially declared disaster area” for tax purposes. That not only means that payments from the Gulf Coast Claims Facility will be taxed, but that the government will likely tax them at the highest possible rate.

So some spill victims will face a 35 percent federal tax burden and up to a 5 percent state tax – which means 40 cents on the dollar will go to Uncle Sam.

This is different from what we’ve seen in situations after hurricanes and floods when the government is fairly quick to designate a “natural disaster” area. Clearly, this is going to have a heavy impact on those Gulf residents who not only lost wages – they would have owed taxes on the wages anyway – but who were also forced out of a barter situation.

Much of the Gulf is a fairly casual barter economy, but many people were forced out of that situation and into a cash economy by the BP spill. While the law seems clear on the BP payment issue, this is going to be a mess across the region. My guess is that a lot of people will just skip payment, especially if they have not had to file before.

That leaves us, somewhere down the road, dealing with a lot of folks with IRS problems. You have to wonder how this plays into pressures to settle quickly with BP even if that’s not the best long-term decision.

We are calling on President Obama to provide tax relief to spill victims by declaring the post-spill Gulf Coast a “disaster area.” This should be a no-brainer for the Administration, and it should be done immediately. See details of relief on the IRS website at http://www.irs.gov/newsroom/article/0,,id=141489,00.html.

WDSU Channel 6 has one of several reports on the IRS situation, which is heating up now that filing season in under way: http://www.wdsu.com/r/26359230/detail.html

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Stuart H. Smith is an attorney based in New Orleans fighting major oil companies and other polluters.
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