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The articles discusses the exclusion from gross income resulting from the effects of qualified

disasters. In 2001, the Congress enacted Code 139,

Hurricane Sandy, also known as Superstorm Sandy, was the cause of 147 deaths in Northeast
US and Canada in November 2012. Beach houses were completely demolished, and people
were left homeless. The torment in the area was of a typical war zone. Of course, while
concerned people looked at the government for assistance, there were question as to whether
these payment would be tax-exempt. As it was a qualified federally declared disaster, the
affected people received help from the government which was tax-free. They could use these
payments and loans to replace and repair damaged property, and use it as temporary living
assistance. The article also discussed how the Congress expanded the general welfare
exception established in Revenue Ruling 98-19 into Section 139 for the benefit of future victims
of terrorist or military attacks or natural disasters.
I think it is fair to exclude such payments that are used in rehabilitation and welfare from the
effects of such a natural disaster. In a welfare society, it is responsibility of the government to
help people maintain quality and standard of living. However, the requirement for receiving such
payments should be stringent - that you must be clearly a victim of such a federally declared
disaster. Then you can use these payments for expenses encountered in rebuilding or repairing
your houses, personal, living, family, medical, transportation, funeral and other such expenses.
In my opinion, there is negligible effect on tax revenue from these tax-savings people get for
their welfare. These types of disasters are infrequent, they are deadly and turn lives of the
people upside down, and warrant such assistance in order for them to rebuild and rehabilitate.
Such tax-free assistance from the government can quickly help affected people stand on their
foot again so that they can contribute in the future.
Response to Alan:
Hi Alan,
I believe this is another example where the court provides the definition of gross income. It
decides on the basis of a personal enrichment test. In normal circumstances, if an individual is
enriched, then he will be taxed on the respective enrichment. In this case, the court also used
purpose and context of signed contract and awareness of physical pain to come to the final
conclusion. It is an instance where definition of gross income is facilitated to evolve and address
new cases sensitive to changing social conditions. The evolution of the definition happens
around the standard set forth by the IRS. I think a similar analogy exist for kidney donation,
where a person in need for it signs a contract with the donor.

Church ($1500): It is clearly a charitable gift given to Mike in time of his need in order to provide
relief and rehabilitation. As such it can be excluded from the income.
Employer ($1000): However, in case of an employer, the text clearly states that anything coming
from the employer to employee cannot be excluded as gift (102 c). If we assume that Federal
Emergency Management Agency declares it as a federally qualified disaster situation, however,
the entire amount from the employer (if it is intended to be disaster relief payment) can be
promptly excluded. The IRS must declare that a disaster is a qualified disaster for payments to
meet these criteria.