LaMalfa, Thompson lead bipartisan effort to help fire victims with the IRS

Congressman Doug LaMalfa and Congressman Mike Thompson led a letter with Senator Dianne Feinstein, Senator Alex Padilla, Congressman Tom McClintock, Congressman Jared Huffman, and Congressman John Garamendi to Internal Revenue Service Commissioner Charles Rettig to expedite and release tax guidance to help wildfire victims understand the taxability of their claims from the Fire Victim Trust. The Trust, a $13.5 billion settlement established in July 2020, is made up of more than 70,000 of the 2015 Butte Fire, the 2017 North Bay Wildfires, and the 2018 Camp Fire. The Trust first began distributing funds in November 2020, and by the end of 2021 totaled $1.7 billion in awards. As a result, this year will be the first that many victims’ awards may be taxable.

This tax season, survivors are struggling to decipher the tax code, determine what amount of their claims can be used to replace their losses, and the overall taxability of their payments. LaMalfa as well as FVT Trustee Judge John K. Trotter have spoken with the IRS numerous times to get them to focus on issuing clarifying guidance. This letter is an effort to push them to expedite verbal confirmation that much of the payments made to victims wouldn’t be taxable under federal law.

The 2021 tax season begins on January 24, 2022.  LaMalfa released the following statement:

“It is unfair to ask fire victims to comprehend a complex tax code while dealing with the emotional turmoil in the aftermath of a wildfire. These survivors should be focusing on rebuilding their homes, businesses and towns. I urge the IRS to alleviate some of these hardships by quickly releasing guidance to help victims navigate this difficult process. These victims are currently in a legal gray area and the IRS has indicated that much of the settlement funds shouldn’t be taxed. We’ve been waiting for months for final guidance, and it needs to be provided immediately. I’m happy that bipartisan pressure is mounting on the IRS to give firm answers to victims.”

“Over the last few years, our communities in Northern California have experienced some of the worst wildfires in our nation’s history,” said Thompson. “I joined my colleagues to send a letter to the IRS urging them to release guidance for claimants of the Fire Victim Trust so they can understand the implications the settlement funds will have on their taxes. As families and businesses rebuild from the damages of these fires, it’s essential that the tax code is easy to understand so our constituents can properly use their settlements to get their lives back on track.”

“The 2020 PG&E settlement provided assistance to more than 70,000 Californians who were victims of wildfires found to be caused by the company. I encourage the IRS to rapidly develop tax guidance for claimants of the Fire Victim Trust so they can understand the tax implications for the relief they receive and start to spend those funds to rebuild their lives,” said Feinstein

“Today, more than 70,000 Californians impacted by the Butte, North Bay and Camp wildfires face uncertainty over whether their Fire Victim Trust claims are taxable,” said Padilla. “As the upcoming tax season nears, I’m joining my colleagues to ask that the IRS clarify the taxation status of these funds and give Californians the clarity they deserve as they continue to recover from these wildfires.”

“It should not be difficult for fire victims to use their settlement payments to rebuild their lives. They have already experienced enough hardship,” said McClintock.

“Wildfire victims who are working to rebuild their homes and their lives should not be burdened by an unclear tax system,” said Garamendi. “We are asking the IRS to remove the bureaucratic red tape and make it clear to wildfire victims how they can use their credit from the Fire Victim Trust to rebuild and replace what they lost.”

“My constituents in Northern California have suffered enough from the devastation brought on by wildfires. They do not need the additional uncertainty of filing their taxes without proper direction while they attempt to recover and rebuild their lives,” said Huffman. “I am calling on the IRS to immediately issue guidance so that all those affected by the California wildfires can file their taxes on time and with confidence. It is the least government can do to support Californians who have lost property, homes, and even loved ones.”

Here’s the text of the letter

We are contacting you today to request the Internal Revenue Service expeditiously draft and disseminate tax guidance for claimants of the Fire Victim Trust, a $13.5 billion settlement established on July 1, 2020 after approval of a reorganization plan for Pacific Gas and Electric (PG&E). This mass settlement is made up of 70,000 victims injured in 2015 Butte Fire, the 2017 North Bay Wildfires, and the 2018 Camp Fire, who are about to enter the first tax season in which their settlement awards may be taxable.

The Trust first began disbursing funds in November 2020 and continued throughout last year – totaling $1.7 billion as of Dec. 30, 2021. However, the taxability of each individual dollar within each award can change depending on what type of loss is being claimed. For example, a claim based on a physical injury, and all emotional injuries associated with it, is tax free. However, a claim based on an emotional injury, and any physical injuries connected to it, is taxable. In addition, capital gains from rebuilding can vary significantly based on a number of factors, such as how long it takes to rebuild, whether a structure was previously a business or residential housing and whether the structure will serve as a primary residence for the affected victim.

These victims are struggling to decipher the tax code and determine what amount of their claims can be used to rebuild their lives or replace their losses. For this reason, we urge the IRS to rapidly draft, finalize, and disseminate tax guidance to help claimants of the Fire Victim Trust navigate the 2021 tax season, which starts on Jan. 24, 2022.