IRS, Treasury: Survivors of 9-11 Tragedy Will Receive Tax-Free Payments

WASHINGTON – Those who lost family members and others affected by the Sept. 11 tragedy, will be able to receive tax-free, periodic payments from the September 11th Victim Compensation Fund. In 2001, Congress established the Fund to make payments to victims and survivors of the September 11th terrorist attacks. To receive an award, either as a lump sum or periodic payments, a claimant generally must file a claim with the Fund no later than December 22, 2003. The Fund, administered by a Special Master of the Department of Justice, initially paid out lump sums (generally at least $250,000 in the case of a deceased victim). In the case of certain survivors, especially children, it appeared that some claimants would prefer to have their compensation spread out over time, in the form of “periodic payments,” rather than to receive immediately the entire lump sum. Lump sum compensation for physical injury or death generally is tax-free. IRS’s Revenue Ruling 2003-115 clarifies that periodic payments from the Fund also will be tax-free to a claimant as long as the claimant elects periodic payments before his or her claim is substantially complete, in accordance with the application process established by the Fund. Revenue Ruling 2003-115 also sets specific deadlines for claimants in particular situations.