BIN LADEN AND INCOME TAXES

You wouldn’t think that with the end of Osama Bin Laden, it would bring taxes to mind, but what can I say, I’m a tax guy.

There was an award of up to $25 million for information leading to his location. I had to ask myself, “I wonder if anybody qualified for the reward.” Then I got thinking... “would this be taxable?” “Would the guy get a 1099?” “Would this be foreign income subject to foreign tax?” Shoot, I actually lost some sleep thinking about this.

For those of you who also wondered about this, here are my thoughts: Payments to informers aren’t specifically exempt, and would therefore be included as taxable income. There’s a bit of “who’s going to know?” going on. Payments made to informers for terrorism are generally kept anonymous under the Rewards for Justice Program. They’re also not required to be reported to the IRS if they meet certain criteria. According to the instructions on form 1099-MISC:

A payment to an informer as an award, fee, or reward for information about criminal activity is not required to be reported if the payment is made by a federal, state, or local government agency, or by a nonprofit organization exempt from tax under section 501(c)(3) that makes the payment to further the charitable purpose of lessening the burdens of government. For more information, see Regulations section 1.6041-3(l).

So in summary, the reward would be considered taxable, but you will not get a 1099 so if you are the informant you are going to have to remember to include the reward on your 2011 tax return.

By the way… if you happen to be the informant… Thank You!