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Updated: IRS says it wants its share of BP payments received by oil spill victims WASHINGTON — The Internal Revenue Service says oil spill victims who receive BP payments for lost wages will have to pay up come tax time. Under current law, BP payments for lost wages are taxable — just like the wages would have been, the IRS said in tax guidance issued Friday. Payments for physical injuries or property loss, however, are generally tax free. Payments for emotional distress? Taxable, though medical expenses related to the emotional distress are deductible. BP officials have agreed to create a $20 billion fund for spill victims, as well as a $100 million fund to support displaced oil rig workers. The IRS issued the guidance today to help spill victims sort through the law’s complexities. The agency has posted tax information for oil spill victims on its website and plans to hold forums in seven Gulf Coast cities on July 17 to help victims with tax troubles or questions. “As residents of the region cope with the evolving situation, I want to assure them that the IRS will be doing everything it can to provide tax help to those who need it,” IRS Commissioner Doug Shulman said. “We encourage anyone who has an issue with the IRS to contact us and explain their hardship, and we will work with them to find a solution.” “We’ll do everything we can under current law to help taxpayers,” Shulman added. Rep. Charlie Melancon, D-La., introduced a bill this week to exempt from taxes all BP payments to spill victims, though its prospects for becoming law were uncertain. “Compensation from BP will help, but during this uncertain time Louisianians will need to stretch every dollar and should not have to worry about setting aside a portion of the payments for taxes,” Melancon said in a statement. Ken Hoagland, chairman of the National FairTax campaign, an anti-tax group, said, “These modest payments are just putting food on the table and should not be taxed.” Follow this link to read the full article . Oil Spill Victims Should Not Be Punished by the IRS Like the aftermath of Hurricane Katrina, oil spill victims are about to kicked by the IRS while they are down. According to a recent Associated Press report, payments by British Petroleum to oil spill victims will be taxed as regular income. The same report quoted several Gulf Coast residents as saying that the money has been entirely spent to make house payments and keep food on the table. They are understandably angry that they will be billed by the IRS for what little help has arrived. After Katrina many New Orleans residents found that the shortage of carpenters made rebuilding their homes within arbitrary IRS time deadlines impossible. To wait meant that insurance company payments would count as taxable income and a lot of people chose to rebuild in others cities where carpenters and homebuilders were not in such short supply. It hurt New Orleans and hurt our citizens. In the name of common sense and compassion for our countrymen on the Gulf, every American should ask Congress and the White House to order the IRS to stand down now on taxes for BP relief payments. These modest and tardy payments will hardly restore lives and livelihoods that have now been damaged or forever destroyed. To follow up with a federal tax bill is like kicking a person who has just been hit by a truck. It is not the first time it has happened but it should be the last. The economies of our Gulf Coast states will be hard hit enough because of the ripple effect of lost incomes and damage to fishing, oil production and tourism. The IRS should not compound this damage with tax bills on those who are hardest hit. There are a lot of reasons to hate the dysfunctional federal tax system that makes Members of Congress powerful and tax lobbyists rich. It is corruption and obvious economic damage to the nation on display. But as bad as it is, few Americans would agree that the federal government should further bleed those who are already reeling from the damage to their beloved Gulf coast communities and their own lives. Both the White House and Congress have the power to help by immediately ordering the IRS to forgo tax bills on emergency relief payments to oil spill victims. Common sense and simple compassion require us to take this step. The question is: can common sense trump the usual rigidity of tax policy and the self-interests of those who think that revenue to the federal government is always more important than the pursuit of happiness—or even survival—by our citizens. More than 500,000 supporters of the FairTax campaign and the Online Tax Revolt Campaign which I chair will be asked to write to the White House right away in support of our countrymen. Whether one embraces the FairTax or the fundamental tax reform approach advocated by Online Tax Revolt marchers, every American should write to Members of Congress and the White House asking for needed relief. Individually, we may not be able to do a lot now about damage that has already been done to our waters and shorelines but we sure can do something about further damage by the IRS to those who now face a hard road in recovering from that damage. Our Online Tax Revolt marchers will immediately begin a journey to New Orleans and will stay there, digitally, until this tax relief has been achieved. This is a call to action to every American to stand up for our fellow Americans and against a broken tax system that has already done enough damage to our economy and taxpayer’s lives. Ken Hoagland is chairman of the FairTax National Victory Campaign and the Online Tax Revolt. More information can be found at: www.FairTax.org and www.onlinetaxrevolt.com.