Relocation Assistance Payment

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Bfish
Bfish Member Newcomer

I lived in an apartment complex in Los Angeles, California (Barrington Plaza). All tenants were evicted using a California law called the Ellis Act. IT WAS A NO FAULT EVICTION. TENANTS HAD NO RESPONSIBILITY IN BEING EVICTED. LANDLORD DID THIS FOR THEIR OWN MODERNIZATION PROJECT. I received what was identified as a Relocation Assistance Payment of $23,000. All tenants will receive payments of various amounts. Landlord designated company forced me to complete a W-9 tax form for the IRS. They said they couldn't advise if this was taxable or not. I tried calling the IRS (they could not answer) and some other sources regarding the taxability status of this payment and read extensively. I learned that this payment is not taxable by the California Franchise Tax Board. I have not been able to determine if it is taxable by the Internal Revenue Service which is the MAJOR CONCERN.

My concerns and questions are 1) If I do or don't receive a 1099 form next year for the payment does this indicate it is or isn't taxable ? 2) If it is taxable why is it designated a Relocation Assistance Payment as opposed to plain income ? 3) I don't have enough expenses to itemize deductions (rather than the standard deduction) on my tax return so I can't claim EXPENSES FOR MOVING INCLUDING BEING FORCED TO LEAVE A BUILDING UNDER RENT CONTROL AND HAVING TO PAY SIGNIFICANTLY MORE TO FIND AND RENT A COMPARABLE APARTMENT"AT "MARKET" COST. 4) What is the fairness of my receiving what is called assistance to me that a large part of which I have to give to the Internal Revenue Service ?

I would greatly appreciate any input or information on this issue or information on any RELIABLE sources that could answer these questions. Thank you in advance for any assistance.

Answers

  • rachels
    rachels FreeTaxUSA Agent
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    Hi Bfish,

    I am sorry that you have been put in that situation. I am happy to help you with your tax questions related to this.

    The IRS states, "an amount included in your income is taxable unless it is specifically exempted by law." Basically, this means that most income is taxable to the recipient. The IRS doesn't seem to have mentioned this kind of situation as an exception to taxable income.

    Additionally, if you look at IRS treatment of various kinds of income, you'll see that most income similar to this is taxable to the recipient. For example:

    -If a taxpayer takes a hardship distribution from their 401(k) retirement account, the distribution is still considered taxable income (unless it was a situation where the contributions were made with post-tax dollars, like a Roth account).

    -Moving expense reimbursements for employees (from 2018-2025) are included as taxable income on their W-2 forms.

    To answer your other questions:

    1. Receiving a 1099 (or not getting one) does not necessarily indicate whether the payment is taxable.
    2. The designation is likely related to the California law that made this kind of eviction legal. The name does not necessarily indicate taxability or nontaxability.
    3. The deduction for moving expenses is actually currently limited (starting in 2018) to active duty members of the Armed Forces who are moving due to a permanent change in station. Meaning, even if you could itemize, you likely would not be able to claim moving expenses.
    4. I am sorry for this situation. If you would like the law to change, you could choose to petition a state congressman.

  • Bfish
    Bfish Member Newcomer
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    This is a NO FAULT eviction. Apparently a determination was made thar taxpayer relocation assistance was required. California exempts this from being taxable income. This is very confusing. It seems the payment was meant for me as relief and compensation for the financial difficulties and expenses this eviction was going to cause me and not any bonus income given to me. I think something should be written by the IRS stating specifically it is taxable rather than stating if this payment is not mentioned as non taxable than it is taxable. I doubt the IRS has dealt with this situation very often or even ever. This is FORCED moving expense.

  • MatthewD
    MatthewD FreeTaxUSA Team
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    Hi Bfish,

    Research shows that a "relocation assistance agreement" between a landlord and tenant, is the same as a "cash for keys" agreement for federal purposes. In situations like this, the IRS has determined that the landlord must provide a 1099-MISC to the payee, with the amount reported in Box 3 as Other Income. You report that on your federal tax return.

    However, for California purposes it is NOT taxable, because it falls under the Ellis act.

    Unfortunately, FreeTaxUSA does not support this particular subtraction in our software, and you will need to use another tax service to file your return for 2023.

    For more details see, "CA code ¶16-332, Subtractions--Relocation Assistance Payments

    State payments for moving and related expenses of taxpayers displaced as a result of the acquisition of real property by the state for public use are excludable from state gross income. ( Sec. 7269, Govt. Code ) Also excluded from gross income are tenant relocation assistance payments that are mandated by state statute or local ordinance. ( Sec. 7269, Govt. Code ) To the extent these payments are included in federal taxable income, taxpayers should make a subtraction adjustment on Sch. CA (540), line 21(f), column B."