IRS Analyzes Highway Relocation Payments

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Publication June 6, 2016

Relocation payments that a company received to make room for a highway expansion did not have to be reported as income.

Compensation must usually be reported as income. The payment in this case was compensation to the company because the state had taken its main office building and warehouse by eminent domain. The company also had moving expenses. These are normally deductible. However, in this case, the IRS did not make the company report the relocation payments as income, and the company could only deduct the moving expenses to the extent they exceeded the compensation it received.

The highway project was a federally-assisted project. The state paid compensation as directed under title II of the federal Uniform Relocation Assistance and Real Property Acquisitions Policies Act. That statute has a special provision that says compensation paid under it does not have to be reported as income.

The IRS addressed the issues in Private Letter Ruling 201617002. It made the ruling public in late April.


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