East Palestine Residents are on the Hook for Payments Received by Norfolk Southern from Catastrophic Train Derailment. Brown Is Fighting to Change That.
WASHINGTON, D.C. – Today, U.S. Senator Sherrod Brown (D-OH) called on the Secretary of the Treasury and the IRS Commissioner to declare the February 3, 2023, Norfolk Southern train derailment in East Palestine a catastrophic event, which would exempt Ohioans from paying taxes on payments they received from Norfolk Southern following the derailment. Brown is urging the IRS and Treasury Secretary to take steps to inform residents that amounts paid or reimbursed by Norfolk Southern are qualified disaster relief payments, and therefore may be excluded from taxable income. Brown has heard from many East Palestine residents who had to pay out of pocket for personal expenses related to the derailment and are now on the hook for taxes on the payments made by Norfolk Southern for these expenses.
“…many residents impacted by the derailment are also now faced with an additional tax burden, which state and local authorities have already acted to address. I request that you make an immediate determination that this event was of a catastrophic nature and take steps to inform impacted taxpayers that Norfolk Southern’s payments are not taxable,” wrote Brown.
Brown’s full letter can be found HERE or below.
Dear Secretary Yellen and Commissioner Werfel:
On February 3, 2023, a Norfolk Southern train derailed in East Palestine, Ohio, uprooting the lives of the residents of the Village of East Palestine and the surrounding area. The train derailment was a catastrophic disaster that has had a devastating impact on the community, imposing a massive toll on the physical, emotional, and financial health of the entire region. The derailment continues to harm residents more than a year after the accident. In addition to these significant challenges, many residents impacted by the derailment are also now faced with an additional tax burden, which state and local authorities have already acted to address. I request that you make an immediate determination that this event was of a catastrophic nature and take steps to inform impacted taxpayers that Norfolk Southern’s payments are not taxable.
Under Section 139 of the tax code, certain payments to individuals may be excluded from income if they were to pay or reimburse expenses incurred as a result of a “qualified disaster”. The Secretary of the Treasury has broad discretion to determine if an event, including an accident involving a common carrier, is catastrophic in nature and can be defined as a “qualified disaster.” Norfolk Southern, a Class I freight railroad, has a common carrier obligation, which refers to its statutory duty to provide “transportation or service on reasonable request.”
It is clear to the residents of East Palestine and those who have visited the community that this disaster was of a catastrophic nature. Thirty-eight railcars from the train derailed, and 11 tank cars carrying hazardous materials, including vinyl chloride, butyl acrylate, 2-ethylhexyl acrylate, and ethylene glycol monobutyl ether, flew off the tracks and ignited. First responders ordered the evacuation of residents in the one-mile zone surrounding the derailment site, affecting up to 2,000 residents. In the days after the incident, a decision was made to vent and burn five tank cars containing 115,580 gallons of vinyl chloride at the direction of Norfolk Southern’s representatives. As noted by the National Transportation Safety Board, responders “expanded the evacuation zone to a 1-mile by 2-mile area and dug ditches to contain released vinyl chloride liquid while it vaporized and burned.”This vent and burn released additional dangerous chemicals into the air, water, and soil of East Palestine and surrounding communities. The long-term environmental and public health impacts of this man-made disaster on residents, including impacts on their mental health, are still not known and require ongoing monitoring for years to come.
In the early days following the derailment, Norfolk Southern made lump-sum payments (sometimes referred to by the company as “inconvenience payments”) to residents of East Palestine and the immediate surrounding area that could be used for immediate reimbursements of relocation expenses or other personal expenses in response to the catastrophic derailment. Because of the sudden nature of the disaster, documentation of initial expenses for residents is neither reasonable nor feasible, and the provision of small lump-sum payments to all members of the Village and surrounding community was necessary to ensure residents had the financial resources required to make immediate decisions to mitigate their exposure to hazardous emissions from the derailment and to prepare for further evacuation, if recommended or mandated by federal or state authorities. The lump-sum payments were small in nature, limited to $1,000, and were issued to persons who were mandatorily evacuated and/or potentially exposed to contaminants released by the vent and burn of tank cars carrying vinyl chloride.
Some residents were separately reimbursed by Norfolk Southern for additional expenses, particularly expenses related to relocation and lost wages, and Norfolk Southern has promoted a program to compensate homeowners who sell their homes for diminished home value incurred as a result of the disaster. I have heard from those that have had to pay out of pocket for necessities like gas, travel, lodging, air and water purifiers, and cleaning services and supplies. It is unacceptable for these residents to have to pay tax for any reimbursements that simply helped make them whole after the derailment.
I strongly urge you to determine that all small lump-sum payments of $1,000 or less and all additional reimbursement payments made to residents of East Palestine by Norfolk Southern are payments for “reasonable and necessary” expenses due to a disaster of “catastrophic nature” and shall be considered to be a “qualified disaster relief payment” under 26 U.S. Code § 139. I also urge the IRS to use existing math error authority to provide residents of East Palestine who have already filed their 2023 tax return a refund for the difference in taxes owed and taxes paid, and to provide support and guidance to impacted individuals as necessary to ensure they have the information and resources necessary to properly manage their 2023 returns.
I appreciate your attention and look forward to your prompt response.
Sincerely,