A little-noticed provision inserted into the tax cut bill approved by Congress last week will exempt tens of thousands of Holocaust survivors and their heirs from paying U.S. federal taxes on compensation payments such as those approved yesterday by the German parliament.

The tax relief measure, which was championed by Sen. Peter Fitzgerald (R-Ill.), was included in the legislation as several major funds are poised to begin making payments to Holocaust victims. From 50,000 to 60,000 Americans who endured forced labor under the Nazis are eligible to receive payments from the $4.4 billion German trust fund.

In addition to long-running German reparations to Holocaust survivors and the country's new forced-labor fund, there is a $1.25 billion Swiss fund and a $360 million Austrian government account. The Swiss fund is for Holocaust survivors who held Swiss bank accounts and for refugees who were expelled or denied entry into the country; the Austrian fund is for an estimated 21,000 Austrian Jewish survivors.

Fitzgerald said the tax bill provision, which will cost the U.S. Treasury $31 million over the next decade and apply to all Holocaust victims, is "coming in the nick of time." President Bush is scheduled to sign the tax legislation next week.

"It was just something that needed to get done," Fitzgerald said in an interview. "It would be beneath the dignity of the United States government to assess federal income taxes on the modest restitution payments that the few Holocaust survivors who are still living would receive. If somebody steals money from you and you get it back, you don't pay income tax on it."

The idea of exempting restitution payments from federal taxes has enjoyed broad support in Congress for a few years. Fitzgerald and then-Sen. Spencer Abraham (R-Mich.) included the provision as part of a 1999 tax cut bill that was vetoed by President Bill Clinton.

Fitzgerald's measure was one of a a handful of provisions that negotiators added at the last minute to the $1.35 trillion tax package. The main components of the legislation include broad cuts in income tax rates, relief for married couples and couples with children, and elimination of the estate tax.

"Clearly, compensation for crimes against humanity should not be taxed," Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) said. "Senator Fitzgerald raised an important issue."

Sen. Peter Fitzgerald (R-Ill.) saw the income tax exemption for payments from restitution funds as "something that needed to get done."