The IRS has released guidelines on how wrongfully incarcerated individuals can claim a retroactive exclusion from income for any civil damages, restitution or other monetary award received in connection with their incarceration. The wrongful-incarceration exclusion was part of the Protecting Americans from Tax Hikes (PATH) Act (P.L. 114-113). The legislation provided a special one-year window during which an eligible individual may file a refund claim based on any civil damages, restitution or other monetary award received and reported in a prior tax year, even if the normal statute of limitations had already expired for that year. The deadline for mailing a claim under this special rule is December 19, 2016. The IRS has also prepared answers to frequently asked questions (FAQs) that provide further details on who qualifies for the exclusion, payments that qualify and the documentation and recordkeeping requirements that apply.
The IRS has established a special filing address for amended returns claiming the wrongful incarceration exclusion. Forms 1040X, along with any supplemental documentation, should be mailed to: Internal Revenue Service 333 W. Pershing, Stop 6503, 5th Floor, Kansas City, Mo. 64108.
Under the new law, there are no reporting requirements for receipt of an award qualifying for the wrongful-incarceration exclusion. Therefore, new recipients need not report the award on their return or submit any documentation to the IRS.
IR-2016-88, 2016FED ¶46,350
Wrongful Incarceration FAQs
Code Sec. 139F
CCH Reference – 2016FED ¶7649ZH.062
Tax Research Consultant
CCH Reference – TRC INDIV: 33,564