Fire victims await federal tax ruling
By Chris Rooney
Legislation that would protect wildfire victims from having taxes levied on their PG& E settlements remains in limbo, according to Congressman Mike Thompson.
Just weeks ago, California legislators announced that wildfire victims won’t be subject to state tax on payouts from the Fire Victim Trust, which administers funds from PG& E stemming from its responsibility for causing a series of fires in 2015, 2017, and 2018. The attention quickly turned to Washington, D.C., as proposed federal legislation would also protect fire victims from paying taxes on payouts via the Internal Revenue Service (IRS). As settlements are gradually being paid, recipients have been surprised and angered by tax ramifications.
“As PG& E has begun disbursing these funds, concerns have emerged that recipients may be required to pay federal taxes on their payout,” Thompson stated in a press release. “I am strongly opposed to the idea that fire survivors, none of whom bore any culpability for their losses, ought to owe taxes on these payments. I am also opposed to the possibility that claimants may owe taxes on the full amount of their payout, even though a third of those funds are paid to attorneys.
“That’s why I introduced H.R. 7305, legislation exempting payments from the trust from federal taxation. The bill also exempts related attorneys’ fees from taxation. The bill clearly stipulates that no fire survivors will be taxed on their payments. Senators Dianne Feinstein and Alex Padilla have introduced identical legislation in the Senate.”
With state officials already working to waive taxes on PG& E payouts, pressure is mounting for elected officials at the federal level to follow suit before the end of the year. Thompson’s office did not return interview requests but issued the hopeful press release and update instead.
“It is important to note that many taxpayers who receive PG& E settlement funds may not owe federal taxes in the first place,” Thompson’s statement read. “This is a complicated and largely unprecedented tax situation, and each taxpayer’s specific situation is different. With that in mind, at my request, the Internal Revenue Service is preparing detailed public guidance for taxpayers who receive PG& E payouts, outlining what, if any, federal taxes are owed on these payments in a given taxpayer’s circumstances.”