In the wake of Hurricane Katrina, which was a Presidentially declared
disaster, federal executive agencies may make payments to their employees
to reimburse the costs of travel, lodging, meals, and incidental expenses
the employees and their dependents incur while evacuating from the Hurricane
Katrina core disaster area and staying at a safe haven. Federal executive
agencies are authorized to pay these special allowances to employees under
5 U.S.C. § 5523(b) (“An employee in an Executive agency may
be granted such additional allowance payments . . . .”) and 5 C.F.R.
§ 550.403(c) if the employees and their dependents “are evacuated
in the United States because of natural disasters or for military or other
reasons that create imminent danger to their lives.” 5 C.F.R. § 550.401(a).
The payments authorized by 5 C.F.R. § 550.403(c) include travel
expenses and per diem payments to offset direct added
expenses the employees and their dependents incur due to an evacuation. Additional
special allowance payments for subsistence expenses, as authorized by and
computed under 5 C.F.R. § 550.405(b)(2), may be paid for a period
not to exceed 180 days after the effective date of the order to evacuate.
Federal executive agencies generally must determine the amount of the special
allowance payments for the employees and their dependents consistent with
the Federal Travel Regulation (FTR), 41 C.F.R. Chapters 300 through 304.
For dependents under 12 years of age and for payments made after the first
30 days of evacuation, the special allowance payments are paid at a rate less
than the maximum per diem. 5 C.F.R. § 550.405.
The regulations authorizing these payments are silent as to whether federal
executive agencies are required to take into account reimbursements from other
payors when determining the amount of a special allowance.
Section 61 provides that except as otherwise provided in subtitle A
of the Code, gross income means all income from whatever source derived.
The Victims of Terrorism Tax Relief Act of 2001, Pub. L. No. 107-134,
115 Stat. 2427 (2001), added § 139 to the Code. Section 139(a)
provides that gross income shall not include any amount received by an individual
as a qualified disaster relief payment.
Under § 139(b)(1), a qualified disaster relief payment includes
any amount paid to or for the benefit of an individual to reimburse or pay
reasonable and necessary personal, family, living, or funeral expenses incurred
as a result of a qualified disaster, but only to the extent any expense compensated
by such payment is not otherwise compensated for by insurance or otherwise.
Section 139(c) defines a qualified disaster to include:
(1) a disaster that results from a terroristic or military action (as
defined in § 692(c)(2));
(2) a Presidentially declared disaster (as defined in § 1033(h)(3));
or
(3) a disaster resulting from an accident involving a common carrier,
or from any other event, that is determined by the Secretary to be of a catastrophic
nature.
Section 139(d) provides that for purposes of chapter 2 and subtitle
C of the Code, a qualified disaster relief payment shall not be treated as
net earnings from self-employment, wages, or compensation subject to tax.
Because “of the extraordinary circumstances surrounding a qualified
disaster, it is anticipated that individuals will not be required to account
for actual expenses in order to qualify for the [§ 139] exclusion,
provided that the amount of the payments can be reasonably expected to be
commensurate with the expenses incurred.” Joint Committee on Taxation
Staff, Technical Explanation of the “Victims of Terrorism
Tax Relief Act of 2001,” As Passed by the House and Senate on December
20, 2001, 107th Cong., 1st Sess.
16 (2001).
.01 Payments Made by Federal Executive Agencies to Which
This Notice Applies
The special allowances described in 5 U.S.C. § 5523(b) and
5 C.F.R. §§ 550.403(c) and 550.405(b)(2) that an employee receives
as a result of Hurricane Katrina will be treated as reasonable, necessary,
and excludable from the gross income and wages of the employee under § 139
to the extent that the expenses compensated by the special allowances are
not otherwise compensated for by insurance or otherwise.
Federal executive agencies that pay an employee special allowances authorized
by 5 U.S.C. § 5523(b) and 5 C.F.R. §§ 550.403(c)
and 550.405(b)(2) as a result of Hurricane Katrina will not be required to
report the special allowances (even if the expenses are otherwise compensated
for by insurance or otherwise) on Form W-2, Wage and Tax Statement,
or to deduct and withhold taxes from these amounts. In addition, the IRS
will not require either a Federal executive agency or its employee to include
any amount of Hurricane Katrina special allowances in wages for employment
tax purposes (even if the expenses are otherwise compensated for by insurance
or otherwise).
.02 Payments Made by Federal Executive Agencies to Which
This Notice Does Not Apply
The rules provided in section 3.01 of this notice do not apply to payments
not described therein. For example, the rules do not apply to advance payments
of pay, allowances, and differentials under 5 U.S.C. § 5522(a) and to
payments made by a federal executive agency to compensate an employee for
expenses incurred in relocating to the disaster area.
