Update 9/17 – Added Bladen, Columbus, Cumberland, Duplin, Harnett, Lenoir, Jones, Robeson, Sampson, and Wayne counties.
NC-2018-03, Sept. 15, 2018
NORTH CAROLINA — Victims of Hurricane Florence that took place beginning on Sept. 7, 2018 in North Carolina may qualify for tax relief from the Internal Revenue Service.
The President has declared that a major disaster exists in the State of North Carolina. Following the recent disaster declaration for individual assistance issued by the Federal Emergency Management Agency, the IRS announced today that affected taxpayers in certain counties will receive tax relief.
Individuals who reside or have a business in Beaufort, Bladen, Brunswick, Carteret, Columbus, Craven, Cumberland, Duplin, Harnett, Lenoir, Jones, New Hanover, Onslow, Pamlico, Pender, Robeson, Sampson, and Wayne counties 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 Sept. 7, 2018 and before Jan. 31, 2019, are granted additional time to file through Jan. 31, 2019. This includes taxpayers who had a valid extension to file their 2017 return due to run out on Oct. 15, 2018. This includes quarterly estimated income tax payments due on Sept. 17, 2018, and the quarterly payroll and excise tax returns normally due on Oct. 31, 2018.
It also includes tax-exempt organizations that operate on a calendar-year basis and had an automatic extension due to run out on Nov. 15, 2018.
In addition, penalties on payroll and excise tax deposits due on or after Sept. 7, 2018, and before Sept. 24, 2018, will be abated as long as the deposits are made by Sept. 24, 2018.
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 county listed above constitutes a covered disaster area for purposes of Treas. Reg. §301.7508A-1(d)(2) and are entitled to the relief detailed below.
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 (including tax-exempt organizations) 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 Jan. 31, 2019, 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 annual information returns of tax-exempt organizations; and employment and certain excise tax returns), that have either an original or extended due date occurring on or after Sept. 7, 2018 and before Jan. 31, 2019.
Affected taxpayers that have an estimated income tax payment originally due on or after Sept. 7, 2018 and before Jan. 31, 2019, will not be subject to penalties for failure to pay estimated tax installments as long as such payments are paid on or before Jan. 31, 2019. The IRS also gives affected taxpayers until Jan. 31, 2019 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 Sept. 7, 2018 and before Jan. 31, 2019.
This relief also includes the filing of Form 5500 series returns, (that were required to be filed on or after Sept. 7, 2018 and before Jan. 31, 2019, 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.
Unless an act is specifically listed in Rev. Proc. 2007-56, the postponement of time to file and pay does not apply to information returns in the W-2, 1094, 1095, 1097, 1098, or 1099 series; to Forms 1042-S, 3921, 3922 or 8027; or to employment and excise tax deposits. However, penalties on deposits due on or after Sept. 7, 2018 and before Sept. 24, 2018, will be abated as long as the tax deposits were made by Sept. 24, 2018.
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, Casualties and Thefts and its Instructions.
Affected taxpayers claiming the disaster loss on a 2017 return should put the Disaster Designation, “North Carolina, Hurricane Florence” at the top of the form so that the IRS can expedite the processing of the refund.
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 “North Carolina, Hurricane Florence” 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.
Federal disaster declaration opens options on the tax return
Taxpayers in a federal disaster area who incur disaster-related casualty losses can deduct their unreimbursed expenses on their tax return either for the year the disaster occurred or the prior year.
For example, a loss occurring in 2018 may be claimed on the taxpayer’s 2018 tax return filed in 2019, or on an original or amended 2017 return filed in 2018. While claiming the loss on the 2017 return results in a faster tax refund, waiting to claim the loss may result in greater tax savings. It depends on the specific situation for the taxpayer. In 1998, the Big Three were about to graduate from high school. If she couldn’t claim any of them on her 1998 tax return, she may want to claim the disaster in 1998 to offset the loss of their dependent exemptions. But if they remained her dependents, it might have been better to deduct the housefire losses on her 1997 return. But regardless of which year provides the greatest tax benefit, if Rebecca needs the money as soon as possible, she’ll have to decide to put it on her 1997 return.
This year, taxpayers might benefit more by deducting casualty losses related to federally-declared disasters on their 2017 returns, when tax rates were higher. But it will depend on their personal situation, including their need for additional resources to cover their immediate costs against their ability to delay until the next filing season. They also need to consider the time it will take to calculate and substantiate their deductible loss.
Casualty loss deduction can provide substantial tax relief
Many homeowner’s and renter’s insurance policies have restrictions, including some that don’t cover natural disasters or flooding. In this case, taxpayers may find some financial relief for their recovery costs for damaged or lost property by claiming their unreimbursed expenses as casualty losses. This includes deductibles on any disaster-related claims.
Also, the IRS may provide additional relief in the form of postponements of filing and payment deadlines. These postponements can be very helpful to affected taxpayers when a major disaster occurs close to a deadline. Taxpayers can check Tax Relief in Disaster Situations to see if a postponement has been granted.
What to do when there’s a disaster declaration
After a federally-declared disaster declaration, survivors will need to calculate their deductible loss, including on casualty loss tax forms. It could be greater than the amount they spend to repair the damage. The calculation takes into account the loss of value to property due to the disaster. They will need receipts and other documentation, and could need an appraisal or other assessment of the fair market value.
Because the stakes are so high and there is so much other work to do and grief to process, taxpayers recovering from a disaster should talk to a tax professional. A tax professional will not only be able to help them get the best tax outcome, but also knows helping people through life’s biggest ups and downs is part of their job.
The Pearson family tax professional might have been one of the first to know about their pregnancy, and helped Jack figure out how to afford the apartment Rebecca wanted with the money they’d get from their three new dependent exemptions. Their tax professional could have helped with child and education related tax benefits over the years, as well as Jack’s dream to start his own business. And after the house fire, their tax professional would have been there too to help with the casualty loss deduction. It’s not just professionals like Dr. K who can have an outsized impact on someone’s life.