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State disaster declarations could trigger quicker IRS tax relief under House bill

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Overhead view of flooding. (Image by Pok Rie via Pexels)

It's already been a literally disastrous year for millions of Americans. When Mother Nature does her worst, major disaster areas are declared, meaning affected residents get access to federal assistance.

However, the process for providing disaster-related tax relief can take time and be confusing. Sometimes it can be frustratingly close to, or even after, impending tax deadlines.

The Internal Revenue Service can't make any decisions to give disaster-struck individual and business taxpayers any filing and payment relief until the president declares a major disaster and the Federal Emergency Management Agency (FEMA) makes its assessments of the areas.

Even in the best of times, federal bureaucracies move deliberately. In the wake of a disaster, the physical complications can make relief actions agonizingly slow.

After filing date extension: That happened last month, when the IRS decided on May 27 to give certain West Virginia taxpayers, whose homes and businesses were flooded, until June 30 to file.

That extension came 10 days after this year's COVID-extended regular May 17 tax-filing deadline.

True, many of the affected taxpayers probably missed the deadline because, well, major flooding. But others probably knew they were missing the filing date and worried about the added costs for late filing.

Such delays, while explainable since the IRS has to wait for White House and FEMA to act, are frustrating at best and could be very costly to affected taxpayers at worst.

That's why two House members have introduced legislation that would allow the IRS to act more quickly following disasters.

State actions can let IRS act: Specifically, H.R. 3574 would let the IRS take disaster-related tax action based on state disaster decisions.

The Filing Relief for Natural Disasters Act, as it's been dubbed by cosponsors Rep. Judy Chu (D-California) and Rep. John Katko (R-New York), would extend the IRS' authority to grant tax filing relief following state-declared disasters and states of emergency.

State governors and emergency officials generally issue their disaster declarations more quickly. By using those official state announcements as the trigger, the bill's authors say that affected individuals and businesses wouldn't have to wait for weeks during a stressful time in which they are looking for all and any help to recover and rebuild following a natural disaster.

"When a natural disaster strikes, ruining homes, communities, and lives, the last thing a survivor should be worried about is filing their taxes," said Chu in announcing the bill. "To help, the IRS has the ability to grant deadline extensions. Unfortunately, that only applies to federally declared emergencies, which are often declared days or weeks after a governor declares a state-level emergency. That means taxpayers have to waste their valuable time and resources filing for penalty waivers and extensions."

In addition, the Chu-Katko legislation would expand the mandatory federal filing extension from 60 days to 120 days.

H.R. 3574 is the current version of similar legislation the pair introduced in previous Congressional sessions. It's pending in the House Ways and Means Committee.

Existing IRS disaster regs finalized: Meanwhile, the IRS recently finalized its regulations that clarify when the disaster-related mandatory deadline postponements under the federal code apply and provide a definition of federally declared disaster.

The action was taken to resolve ambiguities about when a federally declared disaster will lead to a mandatory 60-day postponement of certain time-sensitive tax-related deadlines.

In January 2021, IRS issued proposed regs that —

  • Clarified the rules on which time-sensitive acts are to be postponed;
  • Clarified how the mandatory 60-day postponement period is to be calculated when the declaration does not contain an incident date; and
  • Amended the definition of "Federally declared disaster" to specifically provide that the term includes both a major disaster declared under section 401 of the Stafford Act and an emergency declared under section 501 of the Stafford Act.

The agency's finalized those disaster regs this week. As is often the case, the final version contains only minor changes to the proposed regulations. The most notable tweak was providing more detail in an example of the calculation of the mandatory 60-day postponement period in the event of multiple disaster declarations and shifting incident dates.

You can read the full final regs in the IRS issued TD 9950. They were officially published today in the Federal Register.

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