Part IV – Items of General Interest FEDERAL TAX TREATMENT OF CERTAIN RED HILL FUEL SPILL PAYMENTS

Part IV – Items of General Interest

FEDERAL TAX TREATMENT OF CERTAIN RED HILL FUEL SPILL PAYMENTS

Announcement 2023-07

This announcement informs Federal civilian employees and other civilians who are

not employed by the Federal government who received certain payments in 2022 and

2023 from the Department of Defense (DOD) in reimbursement for lodging, meals, and

personal property damage expenses after the release of petroleum from the Red Hill

Bulk Fuel Storage Facility on Oʻahu, Hawaii (Red Hill Fuel Spill) that such payments are

excludable from gross income for Federal income tax purposes under § 139 of the

Internal Revenue Code.

On November 28, 2021, the United States Navy detected the Red Hill Fuel Spill and

subsequent contamination of the Joint Base Pearl Harbor-Hickam (JBPHH) Water

System servicing Red Hill and surrounding areas. On December 3, 2021, the

Commander, Navy Region Hawaii issued an evacuation authorization (CNRH

Evacuation Authorization) for DOD civilian employees and their dependents, civilians

nonaffiliated with DOD, and dependents of active-duty personnel not accompanying

such personnel living in communities serviced by the JBPHH Water System. The

duration of the order was extended twice, on December 14, 2021, and December 23,

2021. On December 9, 2021, the Commanding General of U.S. Army Pacific issued an

evacuation authorization (CG USARPAC Evacuation Authorization) for residents of the

Aliamanu Military Reservation, Red Hill, and surrounding areas, effective December 2,

2021, in light of unusual and emergency circumstances arising from the Red Hill Fuel

Spill. The CG USARPAC Evacuation Authorization applied to all DOD personnel and

civilian employees and their dependents living in the relevant areas. Additional

communities were added to the CG USARPAC Evacuation Authorization pursuant to

addenda issued on December 10, 2021, and December 11, 2021

ecember 2,

2021, in light of unusual and emergency circumstances arising from the Red Hill Fuel

Spill. The CG USARPAC Evacuation Authorization applied to all DOD personnel and

civilian employees and their dependents living in the relevant areas. Additional

communities were added to the CG USARPAC Evacuation Authorization pursuant to

addenda issued on December 10, 2021, and December 11, 2021. The CG USARPAC

Evacuation Authorization authorized but did not direct evacuation, allowing individuals

to choose to remain in their residences without use of potable water utilities.

On February 18, 2022, the Commander, Navy Installations Command sought

authority from the Secretary of the Navy (SECNAV) to make payments to the civilians

who were covered by the CNRH Evacuation Authorization and the CG USARPAC

Evacuation Authorization and addenda thereto (collectively, Affected Civilians) pursuant

to SECNAV’s “Emergency and Extraordinary Expense” authority under 10 U.S.C. § 127

(EEE Payments). SECNAV approved the making of EEE Payments to Affected

Civilians in a memorandum dated February 25, 2022.

Starting in 2022, DOD made three types of EEE Payments to Affected Civilians.

First, DOD made EEE Payments to reimburse lodging and meal expenses of Affected

Civilians who did not have potable water in their homes and who opted to relocate

pursuant to the CNRH Evacuation Authorization and CG USARPAC Evacuation

Authorization. Second, DOD made EEE Payments to reimburse meal expenses of

Affected Civilians who opted to remain in their housing without the use of potable water

utilities. Third, DOD made EEE Payments to reimburse personal property damage

expenses of some Affected Civilians

er in their homes and who opted to relocate

pursuant to the CNRH Evacuation Authorization and CG USARPAC Evacuation

Authorization. Second, DOD made EEE Payments to reimburse meal expenses of

Affected Civilians who opted to remain in their housing without the use of potable water

utilities. Third, DOD made EEE Payments to reimburse personal property damage

expenses of some Affected Civilians.

To respond to questions raised concerning the Federal income tax treatment of

EEE Payments made by DOD to Affected Civilians, this announcement explains that

Affected Civilians receiving EEE Payments may exclude such payments from gross

income, to the extent the cost reimbursed by the EEE Payment was not also

compensated for by insurance or otherwise, because they are qualified disaster relief

payments within the meaning of § 139 of the Internal Revenue Code.

Specifically, the Department of the Treasury (Treasury Department) and the Internal

Revenue Service (IRS) have determined that the Red Hill Fuel Spill is a qualified

disaster for purposes of § 139(c)(4) that was determined by SECNAV (an applicable

Federal authority) to warrant assistance from DOD (a Federal agency or

instrumentality). Additionally, the Treasury Department and the IRS have determined

that the EEE Payments are qualified disaster relief payments for purposes of

§ 139(b)(4), as they are amounts paid to or for the benefit of an Affected Civilian (an

individual) by DOD (a Federal agency or instrumentality) in connection with the Red Hill

Fuel Spill (a qualified disaster) in order to promote the general welfare (and are not

compensation for services)

and the IRS have determined

that the EEE Payments are qualified disaster relief payments for purposes of

§ 139(b)(4), as they are amounts paid to or for the benefit of an Affected Civilian (an

individual) by DOD (a Federal agency or instrumentality) in connection with the Red Hill

Fuel Spill (a qualified disaster) in order to promote the general welfare (and are not

compensation for services).

Accordingly, EEE Payments made by DOD to Affected Civilians in connection with

the Red Hill Fuel Spill, including reimbursement of lodging and meal expenses for those

Affected Civilians who did not have potable water in their homes and who opted to

relocate, reimbursement for meal expenses for those Affected Civilians who opted to

remain in their homes, and reimbursement for personal property damage expenses of

some Affected Civilians, are qualified disaster relief payments within the meaning of

§ 139(b)(4) that are excludable from the gross income of Affected Civilians to the extent

not compensated for by insurance or otherwise.

INSTRUCTIONS FOR AFFECTED CIVILIANS WHO HAVE NOT YET FILED TAXABLE

YEAR 2022 INDIVIDUAL FEDERAL INCOME TAX RETURNS

Affected Civilians who have not filed their taxable year 2022 individual Federal

income tax returns should not include any EEE Payment amounts (reflected on Form

1099-MISC, Miscellaneous Income) in gross income on their taxable year 2022 returns,

except to the extent the cost reimbursed by the EEE Payment was also compensated

for by insurance or otherwise.

INSTRUCTIONS FOR AFFECTED CIVILIANS WHO ALREADY HAVE FILED

TAXABLE YEAR 2022 INDIVIDUAL FEDERAL INCOME TAX RETURNS

Affected Civilians may amend their taxable year 2022 Federal income tax returns by

filing Form 1040-X, Amended U.S

ss income on their taxable year 2022 returns,

except to the extent the cost reimbursed by the EEE Payment was also compensated

for by insurance or otherwise.

INSTRUCTIONS FOR AFFECTED CIVILIANS WHO ALREADY HAVE FILED

TAXABLE YEAR 2022 INDIVIDUAL FEDERAL INCOME TAX RETURNS

Affected Civilians may amend their taxable year 2022 Federal income tax returns by

filing Form 1040-X, Amended U.S. Individual Income Tax Return, to exclude EEE

Payment amounts (reflected on Form 1099-MISC, Miscellaneous Income) that were

previously included on original taxable year 2022 individual Federal income tax returns,

to the extent the cost reimbursed by the EEE Payment was not also compensated for by

insurance or otherwise. The IRS accepts paper and electronically filed Forms 1040-X.

• If filing Form 1040-X electronically, include “Red Hill Relief” at the beginning of

Part IV, Explanation of Changes.

• If filing Form 1040-X on paper:

o Include “Red Hill Relief” at the top of Form 1040-X. Also, include “Red Hill

Relief” at the beginning of Part III, Explanation of Changes, and

o Mail the Form 1040-X to:

Department of the Treasury

Internal Revenue Service

Austin, TX 73301-0052

The principal author of this announcement is Jonathan A. Dunlap of the Office of

Associate Chief Counsel (Income Tax & Accounting). For further information regarding

this announcement contact Mr. Dunlap at 202-317-4718 (not a toll-free call).