Taxpayer Relief After a Disaster

Unfortunately, natural disasters are all too familiar in the United States. Each year, severe storms, wildfires, hurricanes, and tornadoes occur nationwide, leaving affected taxpayers in challenging situations. Following a natural disaster, the IRS issues a notice informing taxpayers of the relief available for those impacted by the disaster. Let’s review the disaster tax relief provisions, in case we or our clients find ourselves affected by a disaster.  

Who is affected?

To qualify for relief from a federally declared disaster, individuals and business entities must be considered affected taxpayers. Therefore, the first hurdle in determining who is affected is the presidential declaration of a federal disaster area. Affected taxpayers are not limited to those who live and conduct business in the area. They also include taxpayers whose records required for meeting a filing or payment deadline are in the disaster area, even if the taxpayers themselves are not located there. For example, affected taxpayers may qualify because they use a tax preparer in the disaster area who cannot file or pay on their behalf.

Affected taxpayers include:

• Individuals with their principal residence in the disaster area,
• Any business entity or sole proprietor whose principal place of business is in the disaster area,
• Individuals who are relief workers affiliated with a recognized government or philanthropic organization who are assisting in the disaster area,
• Taxpayers whose records necessary to meet a deadline are in a disaster area,
• Individuals visiting the disaster area who are killed or injured because of the disaster,
• Spouse of any of the preceding individuals with regard to a joint return, or
• Any other person the IRS determines to be affected by a federally declared disaster

Taxpayers should review the relief guidance issued by the IRS regarding a disaster. The guidance often lists the counties in the state(s) where the disaster occurred to help taxpayers determine if they qualify for the relief.

 What is the relief?

The IRS offers relief for taxpayers affected by disasters to alleviate their federal tax burdens. The relief often comes in the form of extensions and penalty abatements and may cover income, excise, and employment tax returns. Relief may also include extensions for contributing to traditional or Roth IRAs. Additionally, installment payments due during the disaster relief period are suspended until the month following the end of the relief period.

The IRS may specify a period of no longer than one year to determine the interest, penalty, additional amounts, or additions to tax, as well as any credits or refunds. There is a mandatory 60-day extension for qualified taxpayers starting when the declared disaster begins. If any filing or payment deadline is extended or postponed, the IRS publicizes the extension and issue a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance. The best resource is on the IRS website, Tax Relief in Disaster Situations, to check for any postponements impacting you or your clients.

Let’s take the recent relief granted to taxpayers in Ohio affected by tornadoes that began on March 14, 2024, as an example.

The relief delayed various tax filing and payment due dates between the postponement period of March 14, 2024, through September 3, 2024. Accordingly, affected taxpayers have until September 3, 2024, to file returns and pay any taxes originally due during this period, including the following:

• Individual income tax returns and payments originally due on April 15, 2024
• 2023 contributions to IRAs and health savings accounts
• Quarterly estimated income tax payments originally due on April 15 and June 17, 2024
• Quarterly payroll and excise tax returns originally due on April 30, 2024, and July 31, 2024
• Calendar-year partnership and S corporation returns originally due on March 15, 2024
• Calendar-year corporation and fiduciary returns and payments originally due on April 15, 2024
• Calendar-year tax-exempt organization returns originally due on May 15, 2024

Additionally, penalties for not making the required payroll and excise tax deposits due on or after March 14, 2024, and before March 29, 2024, are abated if the deposits were made by March 29, 2024.

Taxpayers needing additional time beyond the September 3, 2024, postponed deadline, can file for an extension before this date to extend their filing deadline to October 15, 2024. However, the extension will only be for additional time to file and will not extend the payment deadlines.

How to get relief?

The IRS automatically provides relief to taxpayers with an IRS address of record located in the disaster area. Accordingly, taxpayers don’t need to contact the IRS to get relief. Typically, the address of record comes from a filed tax return. If you have a client who moved into a disaster area and has not filed a return yet, consider filing Form 8822, Change of Address, or calling the IRS to update the records.

Taxpayers qualifying for relief living outside the disaster area must contact the IRS. This includes taxpayers whose records are in the disaster area and relief workers affiliated with a recognized government or philanthropic organization. The IRS also offers options for disaster area tax practitioners with clients located outside the disaster area to identify taxpayers qualifying for relief.

What if the records are destroyed?

Taxpayers who lost their records during a disaster can get free return transcripts using the IRS’ Get Transcript tool online. Taxpayers can also request copies of prior tax returns by mail by filing Form 4506, Request for Copy of Tax Return, and writing the disaster designation in red letters at the top of the form to expedite processing and waive the user fee.

How to deduct losses from a disaster area?

Losses from a federally declared disaster are reported on Form 4684, Casualties and Thefts. The FEMA declaration number must be provided on the form. You can look up FEMA declaration numbers at www.fema.gov/disaster. Generally, the disaster year is the year of the disaster (makes sense), although it can be the subsequent year if the loss cannot be ascertained with reasonable certainty until after the disaster year.

For losses during the TCJA period, taxpayers can claim an increased standard deduction using Schedule A, Itemized Deductions, even if they aren’t itemizing deductions on their return.

Taxpayers usually deduct their losses in the disaster year, but it’s possible to amend prior year returns and treat the disaster as occurring in the previous year to receive a quicker refund. The election to take the loss on the preceding year is made on Form 4684 within six months of the regular due date for filing the original return (without extensions). The taxpayer should file the amended return with the appropriate disaster information so the IRS can expedite processing the amended return. For example, a taxpayer has until October 15, 2024, to file a 2022 amended return claiming a disaster loss from 2023. Practitioners should review the IRS page for clients who might qualify.

What is the takeaway?

Disasters impact many states each year. If you or your clients are affected by a disaster, understanding the available tax relief can help alleviate some stress and offer reassurance during a challenging time.

By Ashley Akin, CPA

Sources

• Tax relief in disaster situations | Internal Revenue Service (irs.gov)
• i4684–2023.pdf (irs.gov)
• Publication 584 (02/2019), Casualty, Disaster, and Theft Loss Workbook | Internal Revenue Service (irs.gov)
• Bulk Requests from Practitioners for Disaster Relief | Internal Revenue Service (irs.gov)
• p547.pdf (irs.gov)
• IRC §7508A

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