Revenue Ruling 83-26: Are Relocation Payments Taxable?

Revenue Ruling 83-26 is an Internal Revenue Service (IRS) interpretation of the tax treatment for payments received under the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970. The ruling concludes that these specific relocation payments are not considered part of a recipient’s gross income for federal tax purposes. While most moving expense reimbursements are currently taxable, this ruling provides a notable exception for those displaced by federally funded projects. The guidance clarifies that these payments are not compensatory but are intended to mitigate the financial burdens of a forced move.

The Uniform Relocation Act Explained

The Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, or URA, was enacted to create a standardized policy for treating individuals displaced by federal or federally-assisted programs. The law mandates that certain benefits and payments be provided to offset the costs and disruptions associated with displacement. This legislation applies when a government agency acquires property for a public use, such as for highways or urban renewal projects.

The URA authorizes several categories of financial assistance. These include payments for the reasonable costs of moving personal property and payments to cover increased mortgage or rental fees at a replacement dwelling. The Act was designed to prevent displaced persons from suffering disproportionate financial injury as a result of programs intended to benefit the public.

In addition to financial payments, the URA requires government agencies to provide relocation assistance advisory services. These services are meant to help displaced persons find and move to a suitable replacement property. This can include providing information on available housing, helping to complete application forms, and offering other support to minimize the hardship of the move. The law establishes a minimum level of assistance, though some state and local programs may offer additional benefits.

Core Holdings of Revenue Ruling 83-26

The IRS’s reasoning in Revenue Ruling 83-26 is grounded in the general welfare exclusion. This tax principle allows for the exclusion of certain government payments from income when they are made to promote the general welfare of the public. The IRS concluded that payments authorized by the URA fit this exclusion because they are not compensation for services but are intended to alleviate the economic burden placed on individuals and businesses for the public good.

This distinction became more pronounced after the Tax Cuts and Jobs Act of 2017, which suspended the deduction for most moving expenses and made many employer-paid relocation benefits taxable through 2025. Payments under the URA remain non-taxable because they are classified as general welfare payments, not as income.

The ruling distinguishes URA payments from other government payments that could be taxable. For example, if a payment were intended to replace a business’s lost profits, that portion might be considered income. However, payments for moving expenses, replacement housing, and similar costs under the URA are not in this category, as they are reimbursements for specific losses incurred due to displacement.

Covered Payments and Payors

For a payment to be excludable from income under this ruling, it must be authorized by the Uniform Relocation Act. The payor must be a federal, state, or local government agency administering funds as part of a federal or federally-assisted program. Payments from private entities, even for relocation, do not fall under this ruling.

Moving and Related Expenses

Payments intended to cover the costs of moving an individual, family, or business are a primary category. This includes the expense of transporting personal property or business inventory from the old location to the new one. It can also cover related costs such as packing, crating, and temporarily storing the items.

Replacement Housing Payments

For homeowners and tenants, the URA authorizes payments to assist with securing comparable replacement housing. A homeowner may receive up to $41,200 to cover the price difference for a new home, increased mortgage interest costs, or other purchase-related expenses. A tenant may receive a rental assistance payment of up to $9,570 to help with a down payment or to offset higher rental costs.

Relocation Assistance Advisory Services

The value of relocation assistance advisory services provided by the government agency is not considered taxable income. These services are mandated by the URA to help individuals and businesses navigate the complexities of finding a new location. Because these services are part of the statutory assistance package, their value is not treated as income.

Business Re-establishment Expenses

For displaced businesses, farms, and non-profit organizations, the URA provides payments to help with re-establishment at a new site. As an alternative to payments for actual expenses, an eligible entity may receive a fixed payment of up to $53,200, based on its average annual net earnings. These fixed payments are excludable from income under the general welfare doctrine.

Tax Reporting and Documentation

A taxpayer who receives a payment that is excludable under Revenue Ruling 83-26 does not report it on their federal income tax return. The taxpayer simply omits the amount from their income calculation, as long as the paying agency correctly identifies the payment as non-taxable and does not issue a tax form.

A complication can arise if the paying agency incorrectly issues a Form 1099-MISC or Form 1099-NEC for the payment. Ignoring the form could lead to an automated notice from the IRS proposing additional tax and penalties. To address this, the taxpayer should report the amount on their tax return and then immediately subtract it.

This is done on Schedule 1 of Form 1040. The taxpayer reports the 1099 amount as “Other income” and then, on a separate line, subtracts the same amount with a description such as “Nontaxable relocation payment under Rev. Rul. 83-26.” This creates a net effect of zero, satisfying the IRS’s matching program.

It is advisable to attach a brief explanatory statement to the tax return when using this method. The statement should identify the payment, state it was made under the Uniform Relocation Act, and cite the revenue ruling as the basis for its exclusion. Taxpayers should also retain thorough documentation, including the official letter from the government agency that details the payment and references the URA.