AUGUST 2016 LOUISIANA FLOODING
Federal Disaster Declaration (FEMA)
Number 4277
What differentiates
the following federally declared disasters?
November 2008 California Fires
October / November Super Storm Sandy
August 23-31, 2005, Hurricane Katrina
2013 Colorado Flooding
Before I answer the
question, let’s look at an important section of the Internal Revenue Code,
Section 7508A. This is not a widely called upon Code Section. Basically, for
taxpayers who have experienced a federally declared disaster it allows tax
payers to delay many due dates as well as IRS audit and court hearings to allow
taxpayers to concentrate on their recovery. For the recent flooding in
Louisiana, the IRS has issued a special announcement, LA 2016-20 that clarifies
a Revenue Procedure, 2007-56 that sets out the implementation of IRC Section
7508A as it will apply to those who experienced the Louisiana Floods of August
2016. A copy of the Notice appears at the end of this post.
Now as to the
question at the top of this post:
In the case of a
federally declared disaster, the Internal Revenue Code allows taxpayers to
claim the current year’s loss on the return for the prior year. While the
wording is a bit convoluted, basically, the 2016 loss may be claimed on a 2015
tax return at the taxpayer’s option. Such prior year, if already filed or filed
by October 15, 2016 without claiming the 2016 loss, may be amended, but that
amended return must be filed by April 15, 2017 (next April 15th).
In the case of the
last two incidents listed above, the IRS interpreted Internal Revenue Codes
Section 7508A to delay the required filing date for claiming a federal disaster
loss on the prior year’s income tax return past the normal deadline of April 15th
of the year following the year of the loss until October 15th of that
following year (2014 in the case of the 2013 Colorado Flood). Katrina occurred
in August and the Colorado flood occurred in September.
On the other hand,
the first two incidents list at the beginning of this post, clearly federally declared
disasters, were not provided the same deference. Super Storm Sandy affected
parts of ten states.
What will happen to
the people in Louisiana regarding the April 15th 2017 deadline?
Based on the prior history around Hurricane Katrina, It is very possible that
the IRS may allow the delayed filing for claiming losses on a 2015 return until
October 15th Of 2017.
Keep in mind that
the IRS did not announce the delay for the filing deadline for Colorado
flooding until March 25, 2014. If a taxpayer wants to file the loss on a prior
year return (2015 for Louisiana), the time between March 25th and
the original deadline of April 15th was not enough time to get the gathering
of facts and documentation together in order to prepare the amended return and
file file by April 15th would be very difficult unless the process
had been started much sooner. I have a client who decided to claim the November
2008 loss on their 2007 tax return in early February 2009. We barely made the
April 15th 2009 deadline. For a loss such as the Louisiana floods,
the experts needed to complete the process will be overwhelmed between now and
April 15, 2017, making it very difficult to complete the process even if the
process is started now.
There are two
methods for computing a casualty loss and there are a number of cautions that
may mean that the amount of the loss cannot be determined for the April 15th
filing date. (See other posts on this blog dealing with topics such as “Don’t
Rush to Deduct,” use of the appraisal method and the cost of repairs method.
Beside Louisiana, we
believe that other recent federally declared disasters need to be noted.
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Declar-ation
Number
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Date
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State
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Type
of Disaster
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08/09/2016
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Wisconsin
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08/03/2016
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Montana
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07/15/2016
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Oklahoma
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06/25/2016
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West Virginia
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06/11/2016
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Texas
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There also are a number
of Fire Management Declarations, many of them still active as of this date and
some that may be combined into disaster declarations.
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Fire Management Assistance
Declarations
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Number
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State/Tribal Government
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08/16/2016
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California
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08/14/2016
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California
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08/14/2016
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California
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08/08/2016
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California
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08/01/2016
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Montana
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08/01/2016
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Washington
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07/31/2016
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Nevada
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07/31/2016
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California
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07/29/2016
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Wyoming
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||
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07/29/2016
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Nevada
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07/28/2016
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California
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07/25/2016
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Wyoming
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||
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07/23/2016
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California
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07/14/2016
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New Mexico
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07/10/2016
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Colorado
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07/09/2016
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California
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06/24/2016
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California
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06/21/2016
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Utah
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06/21/2016
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California
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06/19/2016
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California
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06/16/2016
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New Mexico
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06/08/2016
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Oregon
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06/08/2016
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Arizona
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06/05/2016
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California
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Below is a full copy of the IRS Notice LA 2016-20:
Louisiana Disaster Relief Notice (LA-2016-20), August
19, 2016.
[ Code
Sec. 7508A]
Disaster relief: Presidentially declared disaster area:
Louisiana: Severe storms and flooding.–
Victims of severe storms and flooding that began on
August 11, 2016, in parts of Louisiana may qualify for tax relief from the IRS.
The president has declared the parishes of Acadia, Ascension, Avoyelles, East
Baton Rouge, East Feliciana, Evangeline, Iberia, Iberville, Jefferson Davis,
Lafayette, Livingston, Pointe Coupee, St. Helena, St. Landry, St. Martin, St.
Tammany, Tangipahoa, Vermilion, Washington and West Feliciana a federal
disaster area. The IRS has postponed certain deadlines for taxpayers who reside
or have a business in the disaster area. For instance, certain deadlines
falling on or after August 11, 2016, and before January 17, 2017, have been
postponed to January 17, 2017. This includes individual returns on extension to
October 17, the September 15 deadline for making quarterly estimated tax
payments, the 2015 corporate and partnership returns on extension through
September 15, and the October 31 deadlines for quarterly payroll and excise tax
returns. The IRS is also waiving the failure-to-deposit penalties for
employment and excise tax deposits due on or after August 11, 2016, as long as
the deposits are made by August 26, 2016. Filing relief includes the Form 5500
series returns, but not information returns in the Form W-2, 1098, or 1099
series or Forms 1042-S or 8027. Back reference: ¶42,687C.22.
Tax Relief for Victims of Severe Storms, Flooding in
Louisiana
LA-2016-20, August 15, 2016
Updated 8/16 to include Acadia, Ascension, East
Feliciana, Iberia, Lafayette, Pointe Coupee, St. Landry and Vermilion parishes.
Updated 8/17 to include Avoyelles, Evangeline,
Iberville, Jefferson Davis, St. Martin, St. Tammany, Washington and West
Feliciana parishes.
NEW ORLEANS — Victims of the severe storms, flooding,
that took place beginning on August 11, 2016 in parts of Louisiana may qualify
for tax relief from the Internal Revenue Service.
The President has declared that a major disaster exists
in the State of Louisiana. Following the recent disaster declaration for
individual assistance issued by the Federal Emergency Management Agency, the
IRS announced today that affected taxpayers in the parishes of East Baton
Rouge, Livingston, St. Helena, and Tangipahoa will receive tax relief.
Individuals who reside or have a business in the
parishes of East Baton Rouge, Livingston, St. Helena, and Tangipahoa may
qualify for tax relief.
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 August 11, 2016, and before
January 17, 2017, are granted additional time to file through January 17, 2017.
This includes individual returns on extension to October 17, the September 15
deadline for making quarterly estimated tax payments, the 2015 corporate and
partnership returns on extension through September 15, and the October 31
deadlines for quarterly payroll and excise tax returns.
In addition, the IRS is waiving the failure-to-deposit
penalties for employment and excise tax deposits due on or after August 11 as
long as the deposits were made by August 26, 2016.
If an affected taxpayer receives a late filing or late
payment penalty notice from the IRS that has an original or extended filing,
payment or deposit due date that falls within the postponement period, the
taxpayer should call the telephone number on the notice to have the IRS abate
the penalty.
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 866-562-5227 to request
this tax relief.
Covered Disaster Area
The parishes 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. 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 January 17,
2017 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), that have either an original or
extended due date occurring on or after August 11, 2016 and on or before
January 17, 2017. Affected taxpayers also have until January 17, 2017 to make
tax payments, including estimated tax payments, having an original due date
occurring on or after August 11, 2016 and on or before January 17, 2017.
The IRS also gives affected taxpayers until January 17,
2017 to perform other time-sensitive actions described in Treas. Reg.
§301.7508A-1(c)(1) and Rev.
Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to
be performed on or after August 11 2016 and on or before January 17, 2017.
This relief also includes the filing of Form 5500
series returns, in the manner described in section 8 of Rev. Proc. 2007-56.
The relief described in section 17 of Rev.
Proc. 2007-56, pertaining to like-kind exchanges of property, also
applies to certain taxpayers who are not otherwise affected taxpayers and may
include acts required to be performed before or after the period above.
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 August 11, 2016, and before August 26, 2016, will be abated as long as
the tax deposits were made by August 26, 2016.
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 the year in which the event occurred, or
the prior year. See Publication 547 for details.
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 a 2015
return should put the Disaster Designation, “Louisiana, Severe Storms and
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 “Louisiana, Severe Storms and
Flooding.” 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 website, irs.gov, or order them by calling 800-829-3676. The IRS
toll-free number for general tax questions is 800-829-1040.
JOHN
TRAPANI, CPA assists both
taxpayers directly and
advises taxpayers’
tax professionals.
This material was
contributed by John Trapani. A Certified Public Accountant who has assisted
taxpayers since 1976, in analyzing and reporting transactions of the type
covered in this material.
© 2016, John Trapani,
CPA,
All rights to reproduce or quote any part of the
chapter in any other publication are reserved by the author. Republication
rights limited by the publisher of the book in which this chapter appears also
apply.
JOHN TRAPANI
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Certified Public Accountant
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2975 E. Hillcrest Drive, #403
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Thousand Oaks, CA 91362
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(805)
497-4411 E-mail John@TrapaniCPA.com
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Website:
www.TrapaniCPA.com
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It All Adds Up For You
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DISCLAIMER
Unless
otherwise stated the following statement applies to content specified below:
Any
accounting, business or tax advice contained in this communication, is not
intended as a thorough, in-depth analysis of a specific issue, nor a substitute
for a formal opinion, nor can it be considered sufficient to avoid tax-related
penalties. If desired, John Trapani, CPA would be pleased to perform the
requisite complete research and provide with a detailed written analysis.
This material was completed on the date of the posting
