IRS tax relief for disaster victims

I didn’t think that I’d ever see the day when our region would be hit by a storm severe enough to kill people. Last week changed that. Like you, my thoughts and prayers are with those who lost family and friends or their homes in the storm.

The President has declared four Tennessee counties to be federal disaster areas. Two of them, Washington and Greene, are in our region. The IRS is providing tax relief for the filing deadlines for most types of tax returns and the payment due dates for most tax payments. If you know people affected by the storm, please let them know that there may be some items in the tax relief that may help them. In particular, taxpayers who suffered casualty losses can amend their 2010 tax returns to claim their 2011 casualty loss from the storm to obtain refunds of tax to help them pay for repairs to property damaged by the storm.

Here is some information from the IRS website (www.irs.gov) that may be of help:

Victims of severe storms, tornadoes, straight-line winds and associated flooding beginning April 25, 2011 in parts of Tennessee may qualify for tax relief from the Internal Revenue Service.

  • The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after April 25 and on or before June 30 have been postponed to June 30.
  • In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after April 25 and on or before May 10, 2011, as long as the deposits were made by May 10, 2011.
  • If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.
  • The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief.

Covered Disaster Area

The counties listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and 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 deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. For example, a business in Sullivan County that uses a CPA firm in Greene County to perform all of their accounting functions would be eligible for this relief.

In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until June 30 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after April 25 and on or before June 30.

The IRS also gives affected taxpayers until June 30 to perform other time-sensitive actions related to making contributions to qualified retirement plans, filing claims, etc. This relief also includes the filing of Form 5500 series returns and time deadlines pertaining to like-kind exchanges of property.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after April 25 and on or before May 10 provided the taxpayer made these deposits by May 10.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.

Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “Tennessee/Severe Storms, Tornadoes, Straight-line Winds and Associated Flooding” at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications from the official IRS Web site, irs.gov, or order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.

Tagged Accounting, Disaster, Disaster Relief, Taxes, Tax