Tax Issues and the Gulf of Mexico Oil Spill: Legal Analysis of Payments and Tax Relief Policy Options [October 14, 2010] [open pdf - 186KB]
"The explosion of the Deepwater Horizon oil rig and subsequent oil spill into the Gulf of Mexico has led to substantial damages, particularly in the form of lost wages and income. BP has begun to make interim payments to compensate for lost income resulting from the oil spill. Individuals and businesses impacted by the oil spill may file a claim with the Gulf Coast Claims Facility, an independent entity established to administer the claims, with payments coming from an escrow account funded by BP. The tax consequences of these payments to the recipients will depend on the nature of the underlying claim. Payments received for lost wages or income will generally be taxable, while payments for other types of claims, such as physical injury or damage of property, may qualify for exclusion or deferral. Given the magnitude of the economic disruption resulting from the spill, however, policymakers may consider exploring alternative mechanisms for providing relief to the affected region. In the past, Congress has used the tax code as a tool to provide relief to disaster victims. While the Gulf of Mexico oil spill has not been classified as a federally declared disaster, the tax code could be used as a mechanism for delivering additional relief. Tax policy options that could be explored include added casualty loss deductions, an extended net operating loss (NOL) period, employment incentives, enhanced access to retirement savings, and incentives for charitable relief."
CRS Report for Congress, R41323