AUGUST 2016 LOUISIANA FLOODING -Federal Disaster Declaration (FEMA) Number 42

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 15^th).

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 15^th of the year following the year of the loss until October 15^th 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 15^th 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 15^th 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 25^th and the original deadline of April 15^th 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 15^th 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 15^th 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 15^th 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.

Declar-ation Number	Date	State	Type of Disaster
4276	08/09/2016	Wisconsin	Severe Storms and Flooding
4275	08/03/2016	Montana	Tornado
4274	07/15/2016	Oklahoma	Severe Storms and Flooding
4273	06/25/2016	West Virginia	Severe Storms, Flooding, Landslides, and Mudslides
4272	06/11/2016	Texas	Severe Storms and Flooding

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.

Fire Management Assistance Declarations
Number	Declaration Date	State/Tribal Government	Incident Description
5147	08/16/2016	California	Blue Cut Fire
5146	08/14/2016	California	Chimney Fire
5145	08/14/2016	California	Clayton Fire
5144	08/08/2016	California	Pilot Fire
5143	08/01/2016	Montana	Roaring Lion Fire
5142	08/01/2016	Washington	South Ward Gap Fire
5141	07/31/2016	Nevada	Virginia Mountains Fire Complex
5140	07/31/2016	California	Goose Fire
5139	07/29/2016	Wyoming	Tokawana Fire
5138	07/29/2016	Nevada	Rock Fire
5137	07/28/2016	California	Sobranes Fire
5136	07/25/2016	Wyoming	Lava Mountain Fire
5135	07/23/2016	California	Sand Fire
5134	07/14/2016	New Mexico	Timberon Fire
5133	07/10/2016	Colorado	Cold Spring Fire
5132	07/09/2016	California	Sage Fire
5131	06/24/2016	California	Erskine Fire
5130	06/21/2016	Utah	Saddle Fire
5129	06/21/2016	California	Fish Fire
5128	06/19/2016	California	Border 3 Fire
5127	06/16/2016	New Mexico	Dog Head Fire
5126	06/08/2016	Oregon	Akawana Fire
5125	06/08/2016	Arizona	Tenderfoot Fire
5124	06/05/2016	California	Old Fire

Below is a full copy of the IRS Notice LA 2016-20:

IRS Louisiana Disaster Relief Notice (LA-2016-20), 2016ARD 162-1, Internal Revenue Service, (Aug. 19, 2016)

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
	Certified Public Accountant
	2975 E. Hillcrest Drive, #403
	Thousand Oaks, CA 91362
	(805) 497-4411       E-mail John@TrapaniCPA.com
	Website: www.TrapaniCPA.com
	It All Adds Up For You

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