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Are PG&E Settlement Proceeds Paid by the Fire Victim Trust Excluded from Gross Income?

In September of 2022, the California State Senate approved SB 1246 excluding from gross income amounts received from the Fire Victim Trust in connection with the California Wildfires that occurred in 2017 and 2018. The Fire Victim Trust was established and funded on July 1, 2020, after being approved in PG&E’s bankruptcy case. For more information about the Fire Victim Trust, please visit the following link:

To be clear, for taxable years beginning before January 1, 2028, California law now allows a qualified taxpayer an exclusion from gross income for any amount received from the Fire Victim Trust, established pursuant to the order of the United States Bankruptcy Court for the Northern District of California dated June 20, 2020, case number 19-30088, docket number 8053.

Additionally, if a qualified taxpayer included in gross income an amount received from the Fire Victim Trust in a prior taxable year, the taxpayer can file an amended tax return for that year. If the normal statute of limitations has expired, the taxpayer must file a claim by September 29, 2023.

While this is a welcome result for taxpayers from a California state law standpoint, proceeds from the Fire Victim Trust may still be taxable for federal purposes.  That said, there are several provisions of the Internal Revenue Code (“IRC”) that a taxpayer may avail themselves of to potentially exclude a portion of the proceeds received from the Fire Victim Trust from gross income or defer taxes due. Taxpayers may be able to defer tax from the Fire Victim Trust payments under IRC § 1033 for the portion of the proceeds attributable to real property or personal property claims. Additionally, taxpayers may be able to exclude from gross income amounts received from the Fire Victim Trust that qualify as “disaster relief payments” under IRC § 139. Under IRC § 139, payments from the Fire Victim Trust meant to reimburse taxpayers for family living expenses (including funeral expenses) or rebuild a personal residence may be excludable.

On January 9, 2023, California Congressmen Doug LaMalfa (R) and Mike Thompson (D) reintroduced their bill from the last session of the House of Representatives, which would exclude from gross income the amounts received from the Fire Victim Trust at the federal level. Whether the bill will pass is unclear. Congressman LaMalfa’s website contains useful information about the taxation of the payments from the Fire Victim Trust generally:

Notwithstanding the guidance from Congressman LaMalfa (and other online publications), taxpayers who have received payments from the Fire Victim Trust should contact a competent tax professional to assess whether any portion of the proceeds they received can be excluded from gross income or deferred at the federal level.


This article is not intended to and does not constitute legal advice or a solicitation for the formation of an attorney-client relationship. For questions about tax law or other matters, reach out to our experienced tax team at 408.286.5800 or e-mail