Anchorage Daily News

Exxon Valdez litigants will get a tax break out of the financial rescue package passed by the House of Representatives on Friday and quickly signed into law by President Bush.

The measure, which would reduce the tax bite on fishermen and others receiving money in the punitive damage award from Exxon Mobil, was sought by Alaska's congressional delegation.

One week ago, the tax breaks dangled by a fraying thread as part of an unrelated tax bill. But in the financial panic of recent days in Washington, D.C., the Exxon litigation break was shoved into the Wall Street rescue package along with other tax incentives to ensure enough votes for passage.

The new law will allow Exxon litigants who receive awards to average the income over three years, rather than paying taxes on it in just one year. It also allows them to put $100,000 immediately into an IRA. Taxes would be due on the $100,000 only in the future, when the money is withdrawn from the IRA.

Another provision says plaintiffs don't have to pay self-employment or payroll taxes on any payouts in the case.

The tax breaks could cost the U.S. Treasury up to $49 million over the next 10 years, according to estimates accompanying the bill.

"While I was extremely disappointed in the Supreme Court's decision to reduce the punitive damage award to the victims of the Exxon Valdez oil spill, our provision will help lessen the tax burden and allow the 30,000 plaintiffs to keep more of the compensation they receive," Sen. Lisa Murkowski, R-Alaska, said in a release Friday.

Punitive damages against Exxon were first awarded in 1994, and have been tied up in legal appeals ever since. The original award of $5 billion was shrunk by a U.S. Supreme Court decision in June to $507 million. Disputes linger over payment of another $488 million in interest.

Lawyers for the fishermen and other litigants say the first payouts of $383 million of the award's principle should start appearing after Oct. 15, barring last-second legal challenges.

In pushing for the tax breaks, Murkowski argued that the plaintiffs deserved help after 18 years of delay and reduced awards.

The Exxon Valdez language was included in a package of tax incentives passed by the Senate in September. That package, which included extension of renewable energy credits, had a cost of more than $100 billion.

But a House version of the same tax bill left out the Exxon provision, along with several other key parts of the Senate bill, said a Murkowski spokesman. Fiscal conservatives in the House opposed extending the tax breaks, saying they would increase the federal deficit.

Prospects for the bill were uncertain, with the end of the congressional session looming.

But after the House failed to pass the sweeping $700 billion bailout bill on Monday, the Senate took up the measure and added its version of the tax incentives bill -- including the Exxon Valdez language. The House accepted that version Friday.

Rep. Don Young voted against the bailout bill, but said he supported the Exxon Valdez measure.

"I don't think it's fair that they have to pay any taxes on that settlement. That's wrong. It's small enough the way it was," Young said.

Find Tom Kizzia online at adn.com/contact/tkizzia or call him at 907-235-4244. Kyle Hopkins contributed to this story.

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