Years later, confusing tax laws that impacted Camp Fire survivors were corrected

Years later, confusing tax laws that impacted Camp Fire survivors were corrected

When the physical destruction of the Southern California fires finally ends, disaster victims will have to navigate frustrating government bureaucracy in their recovery efforts.

An example of this type of bureaucracy is a tax law that is incomprehensible to survivors the campfire in paradise 2018 I have been dealing with problems for years that IRS officials have only recently been able to correct.

Kim Hurst was just starting work around 7:15 a.m. on the morning of November 8, 2018, when she saw smoke in the distance moving toward Paradise, changing from white to red to black.

“We left at 8:45 a.m. and our neighbor told us our house burned down at 9 a.m.,” she said.

Like everyone else, Hurst faced a harrowing journey out of the city, with smoke and flames turning the morning sun into the darkest of nights. Her entire family survived, but their home and virtually everything they owned was reduced to rubble. It didn’t take long for uncertainty to set in.

“I knew I could get us a house built, and I knew I could get us beds. But I didn’t know if I could get us chairs, a couch, cutlery or anything else because I didn’t know if I would.” “I have enough money,” a tearful Hurst recalled.

Most of the city was wiped out. Since PG&E was blamed for the fire, A $10 billion trust fund was established to help the victims rebuild their homes in paradise.

“Then we found out we had to pay the taxes on it,” Hurst said. “And that was really painful because it felt like someone had now taken something else away from us. And that was all we had left.”

In any settlement, a significant portion of the award is paid directly to the attorneys handling the case. But in 2018 — the same year as the Camp Fire — the Trump administration eliminated legal fees as a tax-free expense, meaning wildfire victims had to pay taxes on money they didn’t even get.

“These 80-year-olds who haven’t paid taxes in 10 years now have to pay $5, $10, $15, $20,000 for a $50,000 settlement,” said John Knecht, a professional tax preparer and owner of Sharrett Accounting in Paradise. “We have others who paid taxes on $300,000 in legal fees, which was completely ridiculous because lawyers pay taxes on that income.”

Knecht has become something of a hero for his neighbors because he helps them find their way in the complex system. That’s because President Biden signed a bill last month that eliminates double taxation. The new law actually does more than that, providing a refund to fire victims who paid taxes as a result of the settlement.

“We have about 3,500 amended tax returns that we will prepare for our clients that will put about $28 million to $30 million back in their pockets,” Knecht explained. “They paid taxes on approximately $110 million from the fire victim’s trust fund that they did not have to pay.”

The IRS actually shut down in January as it prepared for the upcoming tax season, so a system to implement the new law has not yet been put in place. However, Knecht said he expects the first refunds to wildfire victims could be paid out sometime in July.

“Now these people can finish planning what they want to do,” he said. “Some of them held off rebuilding because they didn’t know how much they were going to get, right? Now that they know that money is coming back, they can move on to the next step in their lives. And hopefully this will bring closure.

The money is appreciated, but it might be harder to get closure.

“We will always feel that,” Kim said. “Some people feel more pain from it than others… but we all feel it. But you have to keep going, you know?”

As The new fires continue to rage in Southern Californiait’s something these victims haven’t even thought about. But in time they too will understand what the survivors of Paradise have lived with for the last six years.

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