Don't Mess With Taxes

Louisiana Sen. Mary Landrieu is officially asking the question I did last week: Are BP payments taxable income?

As noted in that post, the consensus is that the money paid to Gulf Coast residents who are out of work because of the Deepwater Horizon oil spill are taxable as replacement compensation.

Still, the Pelican State Democrat wants to hear it from the country's top money men, Treasury Secretary Timothy Geithner and IRS Commissioner Douglas Shulman.

In a letter to the duo, Landrieu points out that the United States' worst oil spill has "triggered some unprecedented questions of tax policy" and says it's time "for impacted Gulf Coast residents to receive basic guidance on fundamental issues."

Specifically, Landrieu wants to know:

• Whether income replacement payments are taxable;
  
• Whether property damage payments are taxable; and
  
• Whether payments for personal injury claims are taxable.
  

"As oil continues to spew into the Gulf of Mexico, the claims against BP will continue to mount, and the need for even the most basic guidance on how BP payments should be treated for federal income tax purposes will continue to grow," wrote Landrieu.

"For that reason, I respectfully request a written response to this letter, either in the form of guidance or an explanation as to the timing for forthcoming guidance, no later than Friday, July 2, 2010."

When the Senator hears back from the Treasury and IRS, we'll let you know their answers.

And I suspect that if the responses aren't to the liking of Landrieu and other federal lawmakers representing Louisiana, Mississippi, Alabama, Florida and probably even my home state of Texas, some or all of them will introduce legislation to change the tax treatment rules.

Related posts:

• Are BP payments taxable income?
• Unemployment's terrible tax surprise
• Tax concerns of the unemployed
• Energy Star rebates aren't federal income
• Yes to more oil spill trust fund money;
  No to higher oil company taxes