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More Disaster Victims in Florida, North Carolina, and Virginia Qualify for Tax Relief

December 07, 2016

Amber Monaghan, CPA, MSAT
Director

Natural disaster tax regulationsNatural disaster tax relief

Following a natural disaster, the affect such a calamity would have on one’s taxes is likely the last thing on an individual’s mind—if it crosses his or her mind at all. However, as inconsequential as it may seem while an individual is contending with the physical manifestations of what a natural disaster leaves in its wake, taxpayers should know that the IRS provides hardship-related relief to those individuals so affected.

Victims of recent severe storms and flooding in numerous states now have more time to make tax payments and file tax returns if they are "affected taxpayers" in counties that have been designated as federal disaster areas qualifying for individual assistance. Affected areas and dates for storms, floods and other disasters occurring in 2016 that are federal disaster areas qualifying for individual assistance are published on the IRS's website, www.irs.gov. The IRS has recently announced that additional counties in Florida, North Carolina and Virginia have been designated as federal disaster areas qualifying for individual assistance.

Disaster Area and Affected Taxpayer

Generally, for eligible taxpayers to take advantage of any relief offered by the IRS, the IRS must first denote whether a locale is a covered disaster area. A covered disaster area refers to an area of a federally declared disaster.

For taxpayers to take advantage of the natural disaster related tax relief that the IRS offers, individuals must be “affected taxpayers.” Those who qualify for relief include:

  • Individuals who live, and businesses whose principal place of business is located, in the covered disaster area.
  • Taxpayers not in the covered disaster area, but whose records necessary to meet a recognized deadline are in the covered disaster area.
  • All relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area.
  • Any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Relief Granted

Under Code Sec. 7508A, the IRS is afforded authority to give affected taxpayers an extended date to file most tax returns. In addition, the IRS may postpone tax payments that have either an original or extended due date that falls on or after the start of the disaster, and on or before the date of the extension. Additionally, the IRS can postpone periods in which to make contributions to, and distributions from, a qualified retirement plan, as well as recharacterization and rollover elections. Other actions that the IRS can postpone include the filing of a petition with the Tax Court, filing a claim for credit or refund, as well as bringing suit on a claim for credit or refund.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record that is located in the designated disaster area. As such, taxpayers need not contact the IRS requesting relief. In some instances, the IRS will also waive late-deposit penalties for federal payroll and excise tax deposits. However, taxpayers who receive late filing or late payment penalty notices should call the number located on the notice to have the penalty abated.

The most significant assistance that the IRS can afford those taxpayers affected by natural disasters is through the casualty loss deduction. Affected taxpayers in federally declared disaster areas are given the option of claiming disaster-related casualty losses on their federal income tax return for the year in which the event occurred, or the prior year, but in any case, not in more than one tax year. On October 13, the IRS issued final and temporary regulations, as well as a revenue procedure that extends the due date by which a taxpayer may make a Code Sec. 165 disaster loss election.

The temporary regulations have extended the due date for making a disaster loss election to six months after the due date for filing the taxpayer’s federal income tax return for the disaster year, which is determined without regard to any filing extension. The IRS provided guidance, in the form of Rev. Proc. 2016-53, along with the regulations that provide the procedures and requirements for how a taxpayer makes or revokes the election.

Storm Preparation

In efforts to encourage taxpayers to be proactive in planning for storms and other natural disasters, the IRS released guidance advising taxpayers as to steps they can take before disaster strikes. Employers who use payroll service providers are advised to ask the provider if it has a fiduciary bond. Such a bond protects the employer in the event of default by the payroll service provider in the wake of a natural disaster. In addition, the IRS advised that taxpayers should have an updated disaster plan and taxpayers should keep a duplicate set of key documents including bank statements, tax returns, identifications and insurance policies. Taxpayers are encouraged to photograph or videotape the contents of their home, as this makes it easier to quickly claim any available insurance and tax benefits.

Additionally, the IRS makes every effort to ensure that taxpayers can access their previously-filed tax returns. Taxpayers can request copies of previously-filed tax returns and attachments, to include Form W-2, by filing Form 4506, Request for Copy of Tax Return. Taxpayers may also request transcripts showing most line items on these returns by ordering through the Get Transcript link on www.irs.gov, by calling 1-800-908-9946, or by using Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript, or Form 4506-T, Request for Transcript of Tax Return.

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Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statues, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.

 

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