Based on relief granted as of October 6, 2017
This article will be updated periodically as the IRS and Congress continue to modify relief available in connection with hurricane damages.
Federal Relief
The IRS has recently announced special relief measures for victims of Hurricane Harvey and Hurricane Irma, including individuals, businesses, and tax-exempt organizations located in the disaster areas. It should be noted that the specific elements of tax relief and those who are eligible for each element continue to develop as the IRS and Congress continue to consider options. The information provided in this Special Alert is as of October 6, 2017.
While taxpayers in many jurisdictions may be eligible for relief, this Special Alert only provides specific details for those taxpayers located in eligible counties in Texas impacted by Hurricane Harvey and taxpayers located in Florida and Georgia impacted by Hurricane Irma.
Tax Return Due Date Extensions
Victims of Hurricane Harvey and Hurricane Irma are given an extended deadline of January 31, 2018 for filing most tax returns, including the Form 990-series returns (Forms 990, 990-PF, 990-EZ, 990-T, or 990-N), as well as the Form 5500-series returns. The relief also includes individual, corporate, partnership, estate, and certain other types of returns. For Hurricane Harvey victims, the relief applies to returns that have an original or extended due date falling on or after August 23, 2017 and before January 31, 2018. For Hurricane Irma victims located in Florida, the relief applies to returns that have an original or extended due date falling on or after September 4, 2017 and before January 31, 2018. For Hurricane Irma victims located in Georgia, the relief applies to returns that have an original or extended due date falling on or after September 7, 2017 and before January 31, 2018.
Quarterly payroll and excise tax returns normally due on October 31, 2017 have also been given an extended deadline of January 31, 2018.
Taxpayers located in all 67 counties of Florida and all 159 counties in Georgia qualify for this tax relief. Taxpayers in other jurisdictions that have been declared a designated federal disaster area as a result of Hurricane Irma are also eligible for relief.
The IRS website at https://www.irs.gov/newsroom/tax-relief-for-victims-of-hurricane-harvey-in-texas provides a current list of counties in Texas which qualify for this tax relief.
In addition, workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization may also qualify for these relief measures, as well as taxpayers who are outside the disaster area but whose records necessary to meet a deadline occurring within the relief period are located in the affected area.
The IRS has indicated that it will automatically identify taxpayers who reside or have a business located in the covered disaster areas and will automatically apply the filing and payment relief. Taxpayers outside the disaster areas must call the IRS disaster hotline at 866-562-5227 to request the filing and payment relief.
Certain Tax Payment Due Date Extensions
Victims of Hurricane Harvey and Hurricane Irma are given an extended deadline of January 31, 2018 for quarterly estimated income tax payments originally due on September 15, 2017 and January 16, 2018. For Hurricane Harvey victims, penalties on payroll and excise tax deposits due on or after August 23, 2017 and before September 7, 2017 will be abated as long as the deposits were made by September 7, 2017. For Hurricane Irma victims located in Florida, penalties on payroll and excise tax deposits due on or after September 4, 2017 and before September 19, 2017 will be abated as long as the deposits were made by September 19, 2017. For Hurricane Irma victims located in Georgia, penalties on payroll and excise tax deposits due on or after September 7, 2017 and before September 22, 2017 will be abated as long as the deposits were made by September 22, 2017.
The same taxpayers that qualify for the tax return due date relief outlined above are eligible for the tax payment due date extensions.
Employer Qualified Disaster Relief Payments
Certain types of assistance that employers provide to employees who are affected by a federally declared disaster are exempt from federal income and employment taxes under a special provision of the Internal Revenue Code. “Qualified disaster relief payments” include payments for reasonable and necessary expenses incurred for personal, family, living, or funeral expenses as a result of a qualified disaster. In addition, reasonable and necessary expenses to repair or rehabilitate a personal residence or to repair or replace the contents of a personal residence are also permitted. The “qualified disaster relief payment” is allowable only to the extent the expenses compensated by such payment are not otherwise compensated for by insurance or otherwise.
The provision of assistance can be in the form of cash or services and requires no substantiation from the employee, while still allowing the employer to deduct the payment as a business expense. The minimal administrative requirements allow employers to react quickly to help the immediate needs of their employees. However, while the statute allows for minimal substantiation to be collected by the employer, because of the potential for abuse of this special provision, we recommend that employers obtain reasonable documentation from the employee to substantiate the amount of their qualifying expenses. We further recommend that the employer retain documentation that substantiates that the tax-free payments made by the employer to affected employees are not in lieu of wages due to the employee.
Payments qualify for the exclusion described above only if they are attributable to a “qualified disaster.” A “qualified disaster” is generally one that is declared by the President of the United States. Unfortunately, it is not completely clear under the provisions of the statute as to whether all areas that have been granted tax relief by the IRS as outlined above also qualify for the “qualified disaster relief payment” tax benefits. Based on our analysis of the statute and related authority, we believe that it is reasonable to treat employees as eligible to receive tax-free “qualified disaster relief payments” if they live in areas which have been identified by the Federal Emergency Management Agency (FEMA) as eligible for individual assistance (see https://www.fema.gov/disasters). While it is possible that other areas may also qualify (such as employees who live in those areas that have been declared disasters but are only eligible for public (not individual) assistance), the IRS has not yet issued any guidance that clarifies or confirms this.
Employer-Sponsored Retirement Plan Relief
Finally, the IRS has announced that certain administrative rules that normally apply to employer-sponsored retirement plans, including 401(k) and 403(b) plans, are relaxed to allow victims of Hurricane Harvey and Hurricane Irma and their families to access funds more quickly through streamlined loan procedures and liberalized hardship distribution rules. For example, plans will be allowed to make loans or hardship distributions before the plan is formally amended to provide for such features. In addition, the plan can ignore the reasons that normally apply to hardship distributions, thus allowing them to be used for food and shelter. If a plan requires certain documentation before a distribution is made, the plan can relax this requirement.
To qualify for this relief, withdrawals must be made by January 31, 2018.
However, the IRS noted that the tax treatment of loans and distributions remains unchanged. Generally, retirement plan loan proceeds are not taxable if repaid over a period of five years or less. Hardship distributions are generally taxable and subject to a 10% early-withdrawal penalty. However, legislation recently signed into law provides that qualified hurricane distributions are not subject to the 10% penalty tax, and also provides additional relief provisions related to such distributions. In addition, the new disaster relief law allows for longer repayment terms and other additional relief provisions related to retirement plan loans taken out by individuals located in the hurricane disaster areas who sustained an economic loss as a result of the hurricanes. For more information, please see our Special Alert regarding this legislation here.
The IRS has indicated that retirement plans can provide this relief to employees and certain members of their families who live or work in disaster area localities affected by Hurricane Harvey and Hurricane Irma that have been designated as eligible for individual assistance by FEMA. For a complete list of eligible counties, visit https://www.fema.gov/disasters.
State Relief
Several states have announced similar relief measures for hurricane victims. In Florida, corporate income/franchise tax returns normally due between August 24, 2017 and January 1, 2018 are now due by February 15, 2018. The Florida Department of Revenue has also announced that it will work with affected taxpayers on a case-by-case basis.
No formal guidance has been issued by the Department of Agriculture and Consumer Services for relief in filing Florida charitable solicitation registrations. BMWL has been informally advised by a representative of the Department that it will evaluate relief on a case-by-case basis, since due dates for charitable solicitation registration forms vary from organization to organization based on each organization’s initial registration date.
The Georgia Department of Revenue has announced relief that coincides with the relief provided by the IRS. The Department is postponing until January 31, 2018, certain deadlines for individuals and businesses that were affected by the disaster. This postponement also includes certain monthly, quarterly and annual sales and use tax returns originally due between September 20, 2017 and January 22, 2018.
Texas has also provided tax relief measures, including relief for sales and franchise tax filings. Other states have announced similar measures for affected taxpayers.
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