Reparations

[Lion]

Client just picked up her 2009 return and mentioned that she'll receive $7,000 this year due to reparations for her now-deceased Jewish parents who fled Austria, as will her brother who is the one who had contact with the agency. Her father began the application process years ago while alive. She says her brother is not going to report it. Is it taxable? Where do I even start. Client knows nothing and will simply receive a wire transfer into her checking account. Brother not inclined to share with me as he has decided he is saying nothing to no one about his receipt. Glad it wasn't 2009. I can research in a couple of months. But, I thought if any of you had already run into this...

[erchess]

Anti Defamation League

There is an organization that seeks to protect the interests of Jews particularly against religion based discrimination. I'm not sure if I have the first two words acceptably transliterated from the Hebrew because my knowledge of the language is limited to one semester over twenty years ago. With that caveat the name of the organization is the B'NAI B'RIT Anti Defamation League and I am sure you can find them in an internet search. I would not expect the person who answers the phone to know off the top of their head but I would expect someone higher up the chain of command to willingly and competently answer the question complete with cites or else point you to someone else who can.

My personal guess is that at the end of the day there's no answer in settled law to this question. We all know that all money received is taxable unless specifically exempted. However, why wouldn't this be treated the same as the result of a court verdict in the US for racial or religious discrimination? It sure isn't enough to be punitive damages. Put another way what about the reparations the US Government has paid to people of Japanese Descent who were interned in WWII? I'm just saying that regarding what your client has specifically it isn't likely that a law either way was passed but I expect you could at least argue with a straight face for making it non taxable.

[DaveO]

I would say it would be non-taxable since the ature of reparations is to right a wrong through cash payments. I also found this which seems to back it up.

INCOME TAXATION OF HOLOCAUST REPARATIONS

The Senate on November 20 approved, by unanimous consent, a measure to repeal the sunset of an exclusion from federal income tax for restitution received by Holocaust victims. The Holocaust Restitution Tax Fairness Bill (Sen 2577) makes permanent the provision originally included in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) (P.L. 107-16).

The House approved similar legislation (HR 4823) by voice vote on June 4 (TAXDAY, 2002/06/05, C.1). The legislation can now move to President Bush's desk for his expected signature.

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The federal government should not receive a financial windfall from Holocaust payments, the House bill's sponsor, House Ways and Means Social Security Subcommittee Chairman E. Clay Shaw, Jr. (R-Fla.), stated in a November 21 press release. Sunsetting the EGTRRA tax cuts creates uncertainty in tax planning for Holocaust survivors and their families, he added.

There will be an estimated 88,000 Holocaust survivors in 2010 when the tax cut would have sunset, according to Shaw. Exempting Holocaust payments will cost $3 million in federal tax revenues for 2012, according to the Joint Committee on Taxation.

[Lion]

Thank you all

From your leads and some PM'd to me, I had the search terms to track down these specific payments from Austria and the resulting federal exemption from income tax, which G.W. Bush signed, I think. Also, some states, such as NY, have specifically exempted reparation payments from tax. (I guess a huge percentage of the recipients live in Brooklyn.) It looks like a broad group of payments resulting from the Holocaust and other WWII atrocities, such as slave labor in Germany, lost property in Germany, Austria, and other countries, etc., are all exempt from federal income tax.

[ChEAr$]

From your leads and some PM'd to me, I had the search terms to track down these specific payments from Austria and the resulting federal exemption from income tax, which G.W. Bush signed, I think. Also, some states, such as NY, have specifically exempted reparation payments from tax. (I guess a huge percentage of the recipients live in Brooklyn.) It looks like a broad group of payments resulting from the Holocaust and other WWII atrocities, such as slave labor in Germany, lost property in Germany, Austria, and other countries, etc., are all exempt from federal income tax.

One more note, Lion. the term holocaust has no meaning in your case, since you only said the parents fled from Austria. Fled to where? the USA? This doesn't mean they were
victims of the holocaust.

[JohnH]

One more note, Lion. the term holocaust has no meaning in your case, since you only said the parents fled from Austria. Fled to where? the USA? This doesn't mean they were
victims of the holocaust.

Austria?
Could be.
Maybe they lived beside a future UN Secretary General or someone like that...

[Lion]

True

True, so my first searches on Holocaust didn't zero in on what I needed, but other phrases, such as WWII reparations, got me to news stories about federal tax exemptions from income for amounts received as reparations to former Austrian citizens or their heirs, as well as other situations. And, to US government web sites giving explanations and web sites for organizations working for reparation payments to people who were enslaved in Germany or lost their business and personal property in Germany or Austria or.... Anyway, as my vocabulary increased, I found a wealth of material out there. Thanks for helping me focus my search.

[Uncle Sam]

Reparations

Not really knowing anything about this subject other than the reparations have always been exempt for victims - I don't know whether or not it extends to 2nd generations (children) of victims who were not effected.

[Lion]

Yes

That was actually covered. Whoever is receiving the funds as the victim or, if no longer alive, the heirs, has the same tax benefit. However, depending on the situation, if the funds are going to heirs, they could be less than if the original sufferer is still alive to receive the funds. In my case, the father and mother had been qualifying for a particular amount based on property confiscated in Austria, but have now passed away. The son and daughter are due to receive a lesser amount based on their relationship to the original applicants. And, the best part is that all of that actually matches what the daughter, my client, told me!