IRS May Tax Payments to Gulf Coast Victims

Well, yes they might:

Out-of-work Gulf Coast shrimper Todd Pellegal spent his first $2,500 check from BP quickly, paying off bills and buying groceries for his family.

He never even considered putting some of it away for taxes.

Now he's among the people up and down the Gulf Coast reeling from the oil spill disaster who are surprised — and frustrated — to find out the Internal Revenue Service may take a chunk of the payments BP PLC is providing to help them stay afloat.

Congress will likely step in to remedy this but for now the payments are intended to make up for lost income. If the spill hadn't occurred and the residents were able to earn their living as normal, they'd be taxed; reimbursement for that lost income would be taxable as well.

According to the article though, in previous disasters, Congress has acted to exempt such payments from tax. I see no reason why that won't happen this time.