Settlements from the PG&E fire

Forum|Forum|3 years ago
February 27, 2023
3 replies
14 views

Several of my clients received settlements from the California PG&E Fire Victims Trust in 2022.

I know that these settlements are normally taxable, but the California Legislature passed AB1249 and SB1246 to exclude the settlement money from gross income for California income tax purposes. I did read that bipartisan legislation (Thompson/LaMalfa) was introduced to exclude these settlements also from federal taxation. I can't find if this has this been resolved? I appreciate any advise on this issue regarding reporting or not reporting as income. Clients attorney told them if you don't get a 1099, it's not taxable, which is questionable? If reporting as income I understand that attorney's fees also should be included as income. Try to explain that!

ProConnect Tax

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qbteachmt

Level 15

"that attorney's fees also should be included as income. Try to explain that!"

TCJA 2017, includes property claims or settlements:

https://www.thebalancemoney.com/are-legal-fees-tax-deductible-5184580

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qbteachmt

Level 15

Thompson has a nice explanation with useful IRS links:

https://mikethompson.house.gov/pgefvt

For instance, "a settlement" is not the same as having lost their primary residence, which is in fact a provision for the IRS exception.

Don't yell at us; we're volunteers

BobKamman

Level 15

The bill was reintroduced last month with bipartisan sponsors, but nothing is going anywhere in this Congress.

https://mikethompson.house.gov/newsroom/press-releases/thompson-lamalfa-huffman-mcclintock-reintroduce-legislation-make-pge

To the extent that it involves property damage, wouldn't it reduce basis before being taxed, perhaps as capital gain? Is Spidell covering this, now that they have washed the egg off their face from the MCTR confusion?

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