Uploaded on November 9, 2016
In the wake of Hurricane Matthew, the Internal Revenue Service has released new rules and procedures for deducting disaster losses.
Revenue Procedure 2016-53 contains rules and procedures for the election under Section 165(i) of the Tax Code to deduct a disaster loss for the taxable year immediately preceding the taxable year in which the disaster occurred. The revenue procedure provides the procedures and requirements for making and revoking an election under Section 165(i).
Along with the revenue procedure, the Treasury Department and the IRS issued temporary regulations to extend the date by which a taxpayer must make a Section 165(i) election to six months after the due date of the taxpayer’s federal income tax return for the disaster year (without regard to any extension of time to file).
The temporary regulations also extend the time for revoking a Section 165(i) election to 90 days after the due date for making the election.
A taxpayer makes a Section 165(i) election by deducting the disaster loss on either an original federal tax return or an amended return for the prior year. Taxpayers need to include an election statement indicating they are making a 165(i) election. The election statement has to contain the name or a description of the disaster and date or dates of the disaster which gave rise to the loss, along with the address, including the city, town, county, parish, state, and zip code, where the damaged or destroyed property was located at the time of the disaster.
For an election made on an original federal tax return, a taxpayer must provide the information on Lines 1 or 19 (whichever is applicable) of Form 4684 (Casualties and Thefts). A taxpayer who files an original federal tax return electronically can attach a statement as a PDF document if there isn’t enough space on Lines 1 or 19 of Form 4684.
For an election made on an amended return, a taxpayer can provide the required information by any reasonable means, such as writing the name or a description of the disaster, the state in which the damaged or destroyed property was located at the time of the disaster, and “Section 165(i) Election” on the top of the Form 4684 and providing the rest of the required information in either the Explanation of Changes in Form 1040X (Amended U.S. Individual Income Tax Return), Form 1120X (Amended U.S. Corporation Income Tax Return), or another appropriate form, or directly on the Form 4684, attaching a statement if there isn’t enough room on the form.
On Tuesday, the IRS said it is offering extensions of time to file and make tax payments to victims of Hurricane Matthew in North Carolina (see IRS Offers Tax Relief for Hurricane Matthew Victims). Additional tax relief is expected to be announced for taxpayers in other states damaged by the hurricane.
The IRS said Thursday that taxpayers who have been affected by Hurricane Matthew but are not yet covered by a federal disaster declaration with individual assistance may still qualify for relief from penalties if they aren’t able to meet Monday’s extended deadline for filing 2015 tax returns.
More individual assistance areas could be added to the federal disaster area in coming days based on continuing damage assessments by the Federal Emergency Management Agency, the IRS pointed out. These additional disaster declarations will pave the way for more extensions and other relief from the IRS. The IRS will automatically provide retroactive extensions and other relief to any locality added to the federal disaster area at a later date. In areas with disaster declarations for individual assistance, taxpayers will have until March 15, 2017 to file returns otherwise due on Monday, October 17.
“The hurricane and flooding have hit many different states hard, and the timing of this is especially tough for taxpayers and tax professionals planning to file by the Oct. 17 extension deadline,” said IRS Commissioner John Koskinen in a statement. “We have been watching this situation unfold and remain in close touch with FEMA. We will do everything we can to work with taxpayers who are in affected areas.””