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IRS Offers Tax Relief to Victims of Hurricane Harvey, Tips for Other Disaster Victims by Karen A. Lake, CPA

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Posted on September 01, 2017 by Karen Lake

The IRS announced a tax relief program for victims of Hurricane Harvey in Texas as well as other taxpayers who live outside of the disaster area but whose records are located in the affected region. Most taxpayers do not need to call the IRS to receive the relief; the agency automatically identifies and applies filing and payment relief to taxpayers whose address are in the covered disaster area.

Filing Extensions

Texas residents who live in federal-declared disaster areas will have until Jan. 31, 2018, to pay their quarterly estimated tax payments that are typically due on September 15 and January 16. In addition, victims who received an extension to file their individual income tax returns on Oct. 16, 2017, will now have until the end of January 2018 to make their 2016 filings. However, any tax payments related to an individual’s 2016 returns should have already been paid to the IRS.

Businesses located in the storm’s path will also receive a three-month extension to file their quarterly payroll and excise tax returns by Jan. 31, 2018. In addition, the IRS will waive penalties on payroll and excise tax deposits due on or after Aug. 23, 2017, and before Sept. 7, 2017, as long as businesses made the deposits by Sept. 7, 2017. Should an affected business receive a late filing or late payment penalty notice from the IRS during the postponement period, it should contact its tax accountant or call the telephone number on the notice to abate the penalty.

Taxpayers Located outside the Disaster Area

The IRS may provide tax filing and penalty relief to certain taxpayers who are outside of the designated disaster areas. This can include businesses whose records are located in the covered areas and/or workers affiliated with qualifying organizations that are assisting with relief efforts. Qualifying taxpayers should contact their tax accountants or call the IRS directly to confirm their eligibility.

Claiming Casualty Losses

Victims of Hurricane Harvey or any federally declared disaster area may be able to deduct certain property damages on their federal tax returns in the year the loss occurred or they may apply the loss to the previous year. The amount of casualty losses a taxpayer may claim is reduced by the amount of reimbursement they receive or expect to receive from their property insurance carrier. Therefore, it is critical that victims file timely claims for property losses with their insurance carriers before claiming casualty losses on their federal income tax returns.

Calculating Casualty Losses

The IRS offers tips to help taxpayers calculate casualty losses based upon cost basis of the property, the current market value (FMV) of the property, insurance reimbursements and the use of the property. However, it is of great value for taxpayers to consult with their tax advisors to confirm or refute loss estimates made by insurance adjusters and substantiating lost business profits in order to defend their claims and recover damages.

Additional Financial Assistance for Storm Victims

In addition to providing storm victims with income and payroll tax relief, the IRS is also making it easier for affected taxpayers to receive loans and hardship distributions from their employer-sponsored retirement savings plans. The agency is treating Hurricane Harvey as an “unforeseeable emergency” and lifting the rules for sponsors of 401(k), 403(b) and 457(b) plans to make loans and hardship distributions to plan participants. Taxpayers should remember, however, that any hardship distribution that does not include already-taxed amounts will be includible in gross income. The distribution will also be subject to an additional 10 percent tax if the employee is under the age of 59 ½. Hardship loans, which are typically limited to $50,000 or half of a vested balance, will not be taxed as long as the employee pays the money back to the plan according to a repayment schedule.

As Hurricane Harvey continues across other states, the IRS may announce additional relief programs. Storm victims should remain alert and assess their eligibility to take advantage of these forms of financial assistance.

About the Author: Karen A. Lake, CPA, is SALT specialist and an associate director of Tax Services with Berkowitz Pollack Brant, where to helps individuals and businesses navigate complex federal, state and local tax laws, and credits and incentives. She can be reached at the firm’s Miami office at (305) 379-7000 or via email at info@bpbcpa.com.