Dealing with natural disasters: IRS relief efforts leave some wanting

More than 4 in 10 Americans have been victimized by a natural disaster, a stressful scenario that can take time to process.

Tax-related responsibilities add to the burden, but filing relief can help.

A survey-high 35% of adults who participated in a Harris Poll conducted on behalf of the AICPA said that an IRS extension of tax relief beyond what’s initially provided by a state of emergency would be most helpful. Nearly 3 in 10 (29%) most wanted an improved process for requesting an extension when property is involuntarily converted (i.e., a loss of property due to natural disaster, fire, or theft), and 21% most wanted the IRS to stagger individual and business deadlines for tax relief after a disaster.

Many respondents affected by a natural disaster were left wanting by the process — or at least waiting. While 36% waited less than six months for tax relief from the federal government, another 36% waited at least one year or received no relief.

“Those impacted by disasters are already overcome with stress, anxiety, and emotion over their losses — they should not have the added worry of deadlines and penalties from the federal government on top of their other challenges,” Melanie Lauridsen, AICPA vice president–AICPA Tax Policy & Advocacy, said in a news release. “These poll results clearly show that Americans are in need of additional and more immediate relief from the federal government during these challenging times.”

• Twenty-two percent received no tax relief from the federal government after being affected by a natural disaster, and 14% said it took one year or more to receive relief.
• Twenty-eight percent said it took more than six months but fewer than 12 months to receive relief.
• Twenty-five percent said it took between one and six months; 11% said it took less than a month.

More than 2 in 5 (42%) noted that if they experienced a natural disaster, it would be helpful if the IRS could offer tax relief once a governor declared a state of emergency instead of waiting for the federal government to declare the same. A bipartisan law recently passed by Congress will provide relief on that time frame.

“The timeliness of tax filing and payment relief following a disaster, especially when disasters strike close to filing deadlines, can give taxpayers one less thing to worry about as they begin the process of rebuilding,” Lauridsen said. “We are grateful to Congress for working together to ensure that taxpayers can get the relief they need immediately following a disaster.”

CPAs offer tax filing advice

Americans affected by a disaster still must comply with tax obligations. From the news release, here are strategies that can help taxpayers navigate the web of tax compliance following a disaster:

Stay up to date on tax relief:

• The IRS may grant additional time to file returns and pay taxes for a federally declared disaster area. Find the latest news following a disaster on the IRS’s Tax Relief in Disaster Situations page. FAQs are also available to assist taxpayers.
• Search your state’s tax and local government offices for relief policies, as state legislation may not follow federal legislation when it comes to disaster relief. Also, visit the AICPA’s State Disaster Tax Relief Guide.

Natural disaster-related tax tips:

• Individuals can claim a casualty loss tax deduction for damaged or destroyed property due to a federally or state declared disaster. The damage must be documented with photos or video, and receipts for repairs and records of insurance or other reimbursements must be kept.
• For disasters with an incident period beginning after Dec. 27, 2020, and before July 5, 2025, taxpayers are generally eligible for qualified disaster loss treatment, which waives the 10%-of-adjusted-gross-income limitation, sets the casualty loss floor to $500, and allows individuals to add the casualty loss deduction to their standard deduction.
• Disaster victims may be eligible to take special disaster distributions from retirement plans without incurring the additional 10% early distribution penalty.

AICPA RESOURCE

Insights related to disaster financial planning

— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.