relocation payments

[kathyc2]

Client had a forced sale of house to city for a road project. Received a 1099S which is not a problem due to 121 exclusion. They also received a 1099misc with 9K in box 3. This is for moving expense (they did not have any as they moved themselves) and differential. Along w/ the 1099 was a sheet referencing Public law 91-646 and 100-17. Section 216 of 91-646 states:

PAYMENTS NOT TO BE CONSIDERED AS INCOME

SEC. 216. No payment received under this title shall be considered as income for the purposes of the Internal Revenue Code of 1954; or for the purposes of determining the eligibility or the extent of eligibility of any person for assistance under the Social Security Act or any other Federal law (except for any Federal law providing low-income housing assistance).

It seems to me that it would not be taxable, but if they knew this I'm confused as to why the city issued them a 1099misc. Does anyone have additional insight on a situation like this?

[Burke]

Seems like a total error on the part of the city, IMO.

[Roland Slugg]

Relocation allowances received from a government agency due to displacement such as you described, are NOT taxable as long as the amount is used in connection with the relocation. Amounts so paid are not strictly moving expense allowances and do not have to be used for moving expenses. This is different from a moving expense allowance received from someone's employer. If the dislocated people purchased a new residence that cost more than they received for the old one, the $9k can be excluded.

A condemnation is an "involuntary conversion." If the taxpayers purchase a new residence within the time allowed ... generally two years after the end of the year in which the conversion occurred ... there is no reporteble gain, and none of the §121 exclusion needs to be used at that time. (See Code §1033(a)(2)(B))