|Hurricane Sandy: Roundup of relief provisions
IRS tries to make life a little easier for people who lived through Hurricane Sandy.
December 13, 2012
The IRS has the authority under Sec. 7508A to postpone deadlines for tax filings and payments of income (including employment taxes), gift, estate, and excise taxes after federally declared disasters have occurred. Traditionally, the IRS grants some relief after a natural disaster, but Hurricane Sandy, which hit the Northeast in late October, is the worst storm to hit the United States since Hurricane Katrina in 2005, and the IRS relief provisions reflect that. To date, the IRS has issued 11 news releases (and five Spanish-language versions) and several notices and announcements providing relief. This article summarizes the relief available as of Dec. 5 and includes links to more in-depth articles on certain subjects.
The first provision is not actually a relief provision, but could more accurately be called a “Good Samaritan” provision. Under Notice 2012-69, charitable-minded employees can elect to forgo vacation, sick, or personal leave in exchange for cash payments an employer makes to Sec. 170(c) charitable organizations for the relief of victims of Hurricane Sandy, and the payments are excluded from their income. The employees do not get a deduction for a charitable contribution, but their employers can take a deduction for the payment under Sec. 162 or Sec. 170. (For more details, see “Leave-Based Donation Programs Allowed for Hurricane Sandy Relief.”)
The most widely applicable relief is the postponement of various filing and payment deadlines that were due starting in late October, when the storm occurred. Individuals and businesses in the affected areas have until Feb. 1, 2013, to file these returns and pay any taxes due: fourth quarter estimated tax payment that would be due Jan. 15, 2013; third and fourth quarter payroll and excise tax returns and payments that would be due Oct. 31, 2012, and Jan. 31, 2013; and other relief. (See “IRS Extends Deadlines, Provides Relief for Hurricane Sandy Victims” for more details, including the definition of “affected areas.”)
Qualified disaster relief payments
IR-2012-84 announces that, because Hurricane Sandy is designated a qualified disaster for federal tax purposes, qualified individuals can exclude qualified disaster relief payments received from their employers or other persons from income (see Sec. 139). Qualified disaster relief payments include amounts to cover necessary personal, family, living, or funeral expenses that were not covered by insurance, as well as expenses to repair or rehabilitate personal residences or repair or replace the contents to the extent that they were not covered by insurance. In addition, the news release explains that employer-sponsored private foundations may provide disaster relief to employees in areas affected by the hurricane without affecting their tax-exempt status.
Taxpayers who have immediate financial needs that they cannot meet may find it helpful to take advantage of the special rules permitting loans or distributions from retirement plans. (For a detailed discussion of this relief provision, see D’Amico, “Hurricane Sandy Relief Through Retirement Plan Hardship Distributions and Loans,” Tax Insider (Dec. 13, 2012).)
The IRS is offering to expedite processing of Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, for new charities set up to serve hurricane victims and explains how taxpayers can request expedited processing by writing “Disaster Relief—Hurricane Sandy” at the top of the application. But the IRS is also reminding people that existing charitable organizations might be better able to respond (IR-2012-87). Another relief provision for charitable organizations involves giving small organizations additional time to file if they had their tax-exempt status automatically revoked for nonfiling (IR-2012-96).
Low-income housing credit
A provision aimed at helping the enormous number of people made homeless by the storm waives two requirements that normally apply to the low-income housing credit: Owners of low-income housing can provide housing to hurricane victims who don’t meet the income requirements; and the requirement that housing not be for transient residents is also waived (Notice 2012-68, IR-2012-86).
Dyed diesel fuel
One of the more obscure penalty waivers is the one that applies to the excise tax on dyed diesel fuel that is used on the highway. Diesel fuel used on the highway is normally clear (i.e., undyed), but there is a shortage of that fuel in New Jersey and certain parts of New York. Dyed diesel fuel is usually not taxed because it is used for exempt purposes (e.g., home heating and municipal buses). This relief does not waive the tax that is due on the diesel fuel, but only the penalties that apply for failing to deposit it. As of this writing, the penalty waiver expired Dec. 7, but the IRS says it is closely monitoring the situation and will provide further relief if necessary, so it will likely extend it again (IR-2012-85, IR-2012-94).
Because Hurricane Sandy has damage estimates equal to or exceeding those from Hurricane Katrina, it is possible that Congress (which is preoccupied with other issues, most prominently the “fiscal cliff” negotiations) may enact legislation similar to that enacted after Katrina, including relief from the 10% penalty under Sec. 72(t) for early retirement plan distributions, increased retirement plan loan amounts, and suspension of retirement plan loan repayment periods. The IRS cannot waive any of those rules because they are statutory and had to wait for legislation to do so after Katrina. Stay tuned for developments.
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Sally P. Schreiber, J.D., is a senior editor in the AICPA’s magazines and newsletters group. She contributes to The Tax Adviser and Journal of Accountancy as well as the Corporate Taxation Insider and Tax Insider newsletters.