JOSH GREEN, M.D.

GARY S. SUGANUMASYLVIA LUKEKRISTEN M.R. SAKAMOTO

DIRECTOR OF TAXATIONGOVERNORLT. GOVERNOR

DEPUTY DIRECTOR

STATE OF HAWAII

DEPARTMENT OF TAXATION
Ka 'Oihana 'Auhau

P.O. BOX 259
HONOLULU, HAWAII 96809

PHONE NO: (808) 587-1530
FAX NO: (808) 587-1584

April 5, 2023

DEPARTMENT OF TAXATION ANNOUNCEMENT NO. 2023-01
RE:Tax Treatment of Certain Red Hill Bulk Fuel Storage Facility on Oahu (“Red Hill FuelSpill”) Payments

On April 5, 2023, the Internal Revenue Service (IRS) issued guidance in Announcement2023-07 (copy attached) stating that the Red Hill Fuel Spill is a qualified disaster for purposes ofInternal Revenue Code (IRC) section 139(c)(4). They added that the Emergency andExtraordinary Expense (“EEE”) payments made to certain civilians affected by the Red Hill Fuel
Spill are qualified disaster relief payments and therefore not taxable income.
Hawaiʻi adopts IRC section 139 in its entirety without modification for Hawaiʻi Net
Income (“NI”) Tax purposes under Hawaiʻi Revised Statues (HRS) section 235-2.3, and these
EEE payments are also excluded from Hawaiʻi NI to the extent it is excluded from federal
income taxation.
For Hawaiʻi resident taxpayers, this amount is already excluded and no other action isrequired.
Taxpayers who have already filed and reported the EEE payments on their NI tax returns
may amend their 2022 Hawaiʻi tax returns to exclude EEE payment amounts that werepreviously included on their original 2022 tax return. When submitting your amended return,attach Schedule AMD to report the exclusion of the EEE payment amounts and enter “Red HillFuel Spill” as the reason for the amendment under the Explanation of changes column. Hawaiʻi
accepts paper and electronically filed amended income tax returns.
If you have any questions, please contact the Hawaiʻi Department of Taxation Technical
Section by calling (808) 587-1577 or by email at tax.technical.section@hawaii.gov.

/s/
GARY S. SUGANUMA
Director of Taxation
Section Explained: HRS §235-2.3
Attachment – IRS Announcement 2023-07

Part IV – Items of General Interest

FEDERAL TAX TREATMENT OF CERTAIN RED HILL FUEL SPILL PAYMENTS

Announcement 2023-07
This announcement informs Federal civilian employees and other civilians who are
not employed by the Federal government who received certain payments in 2022 and2023 from the Department of Defense (DOD) in reimbursement for lodging, meals, andpersonal property damage expenses after the release of petroleum from the Red Hill
Bulk Fuel Storage Facility on Oʻahu, Hawaii (Red Hill Fuel Spill) that such payments areexcludable from gross income for Federal income tax purposes under § 139 of theInternal Revenue Code.
On November 28, 2021, the United States Navy detected the Red Hill Fuel Spill andsubsequent contamination of the Joint Base Pearl Harbor-Hickam (JBPHH) Water
System servicing Red Hill and surrounding areas. On December 3, 2021, theCommander, Navy Region Hawaii issued an evacuation authorization (CNRH
Evacuation Authorization) for DOD civilian employees and their dependents, civilians
nonaffiliated with DOD, and dependents of active-duty personnel not accompanying
such personnel living in communities serviced by the JBPHH Water System. The
duration of the order was extended twice, on December 14, 2021, and December 23,2021. On December 9, 2021, the Commanding General of U.S. Army Pacific issued anevacuation authorization (CG USARPAC Evacuation Authorization) for residents of theAliamanu Military Reservation, Red Hill, and surrounding areas, effective December 2,2021, in light of unusual and emergency circumstances arising from the Red Hill FuelSpill. The CG USARPAC Evacuation Authorization applied to all DOD personnel andcivilian employees and their dependents living in the relevant areas. Additional
communities were added to the CG USARPAC Evacuation Authorization pursuant toaddenda issued on December 10, 2021, and December 11, 2021. The CG USARPAC
Evacuation Authorization authorized but did not direct evacuation, allowing individuals
to choose to remain in their residences without use of potable water utilities.
On February 18, 2022, the Commander, Navy Installations Command sought
authority from the Secretary of the Navy (SECNAV) to make payments to the civilians
who were covered by the CNRH Evacuation Authorization and the CG USARPAC
Evacuation Authorization and addenda thereto (collectively, Affected Civilians) pursuantto SECNAV’s “Emergency and Extraordinary Expense” authority under 10 U.S.C. § 127(EEE Payments). SECNAV approved the making of EEE Payments to Affected
Civilians in a memorandum dated February 25, 2022.
Starting in 2022, DOD made three types of EEE Payments to Affected Civilians.
First, DOD made EEE Payments to reimburse lodging and meal expenses of Affected
Civilians who did not have potable water in their homes and who opted to relocate
pursuant to the CNRH Evacuation Authorization and CG USARPAC Evacuation
Authorization. Second, DOD made EEE Payments to reimburse meal expenses ofAffected Civilians who opted to remain in their housing without the use of potable water
utilities. Third, DOD made EEE Payments to reimburse personal property damage
expenses of some Affected Civilians.

To respond to questions raised concerning the Federal income tax treatment ofEEE Payments made by DOD to Affected Civilians, this announcement explains that
Affected Civilians receiving EEE Payments may exclude such payments from grossincome, to the extent the cost reimbursed by the EEE Payment was not alsocompensated for by insurance or otherwise, because they are qualified disaster relief
payments within the meaning of § 139 of the Internal Revenue Code.
Specifically, the Department of the Treasury (Treasury Department) and the Internal
Revenue Service (IRS) have determined that the Red Hill Fuel Spill is a qualified
disaster for purposes of § 139(c)(4) that was determined by SECNAV (an applicableFederal authority) to warrant assistance from DOD (a Federal agency orinstrumentality). Additionally, the Treasury Department and the IRS have determinedthat the EEE Payments are qualified disaster relief payments for purposes of§ 139(b)(4), as they are amounts paid to or for the benefit of an Affected Civilian (anindividual) by DOD (a Federal agency or instrumentality) in connection with the Red Hill
Fuel Spill (a qualified disaster) in order to promote the general welfare (and are notcompensation for services).
Accordingly, EEE Payments made by DOD to Affected Civilians in connection with
the Red Hill Fuel Spill, including reimbursement of lodging and meal expenses for thoseAffected Civilians who did not have potable water in their homes and who opted torelocate, reimbursement for meal expenses for those Affected Civilians who opted toremain in their homes, and reimbursement for personal property damage expenses ofsome Affected Civilians, are qualified disaster relief payments within the meaning of§ 139(b)(4) that are excludable from the gross income of Affected Civilians to the extent

not compensated for by insurance or otherwise.
INSTRUCTIONS FOR AFFECTED CIVILIANS WHO HAVE NOT YET FILED TAXABLEYEAR 2022 INDIVIDUAL FEDERAL INCOME TAX RETURNS
Affected Civilians who have not filed their taxable year 2022 individual Federalincome tax returns should not include any EEE Payment amounts (reflected on Form1099-MISC, Miscellaneous Income) in gross income on their taxable year 2022 returns,
except to the extent the cost reimbursed by the EEE Payment was also compensatedfor by insurance or otherwise.
INSTRUCTIONS FOR AFFECTED CIVILIANS WHO ALREADY HAVE FILEDTAXABLE YEAR 2022 INDIVIDUAL FEDERAL INCOME TAX RETURNS
Affected Civilians may amend their taxable year 2022 Federal income tax returns byfiling Form 1040-X, Amended U.S. Individual Income Tax Return, to exclude EEE
Payment amounts (reflected on Form 1099-MISC, Miscellaneous Income) that werepreviously included on original taxable year 2022 individual Federal income tax returns,
to the extent the cost reimbursed by the EEE Payment was not also compensated for by
insurance or otherwise. The IRS accepts paper and electronically filed Forms 1040-X.
•If filing Form 1040-X electronically, include “Red Hill Relief” at the beginning ofPart IV, Explanation of Changes.

•If filing Form 1040-X on paper:o Include “Red Hill Relief” at the top of Form 1040-X. Also, include “Red HillRelief” at the beginning of Part III, Explanation of Changes, ando Mail the Form 1040-X to:
Department of the Treasury
Internal Revenue ServiceAustin, TX 73301-0052

The principal author of this announcement is Jonathan A. Dunlap of the Office of
Associate Chief Counsel (Income Tax & Accounting). For further information regarding
this announcement contact Mr. Dunlap at 202-317-4718 (not a toll-free call).