Disaster Tax Relief
Background
The Federal Emergency Management Agency (FEMA) declares as many as 75 major disasters each year, and over 500 major disasters have been declared since 2005. Yet, in almost all of those communities affected by floods, hurricanes, tornadoes and other natural catastrophes, few were granted the federal tax relief they needed.
The AICPA is concerned about the struggles taxpayers face when they need to make home repairs and reopen their businesses immediately after the disaster. In some cases, such as Hurricane Sandy, residents and businesses have yet to receive any form of tax relief. The current system does not provide fair and reliable tax assistance for disaster victims.
That's why we are out front seeking solutions, proposing that Congress provide permanent tax benefits that would kick in automatically when FEMA declares a location to be federal disaster area.
This way, victims in that area can always count on reliable and timely tax relief, and their CPAs can better advise them on successful strategies. "Right now, we're left guessing," testified Troy Lewis, chair of the AICPA's Tax Executive Committee.
AICPA Position
For example, the AICPA recommends that Congress allow business owners and individuals the time they need to claim losses by extending the net operating loss carryback to 5 years. This would also help taxpayers amend prior returns to receive increased refund amounts that they can use to help rebuild. We also propose giving taxpayers more time (5 years) to replace their property. Under current law, disaster victims are not able to defer gains from insurance settlements after two years and must pay income taxes on these proceeds; in other words, they are taxed on the cost of replacing their home or business. Individuals whose homes are damaged or destroyed often need to tap into additional funds beyond what they may receive from insurance providers or the government. That's why the AICPA recommends that Congress allow them to withdraw up to $100,000 from their retirement plan (without tax) and repay that amount within five years, and also exclude from taxable income the cancellation of debt income for non-business debts. |
Tax Advocacy Efforts
The AICPA actively monitors and advocates for legislation to provide disaster-related tax relief. Below are a few milestones:
- August 29, 2023 – AICPA Provides Recommendations for Updated Guidance and Clarifications on Disaster Tax Relief
The AICPA provides comments and recommendations for updated guidance and clarifications from the IRS in several areas relating to disaster tax relief. - June 12, 2023 – AICPA Supports the Casualty Loss Deduction Restoration Act
AICPA submitted a letter of support for the Casualty Loss Deduction Restoration Act, which would repeal the suspension imposed by the Tax Cut and Jobs Act for tax years 2018-2025 of personal casualty loss deductions not attributable to a Federally declared disaster, subject to a maximum deduction of $50,000 per year for tax years 2018-2025. In addition, the proposed legislation would extend the period of limitation on filing a claim for credit or refund of tax as a result of a deductible personal casualty loss for tax years 2018-2025. AICPA also suggested several improvements to the legislation in addition to noting our 11 recommendations for disaster tax relief as well. - June 9, 2023 – AICPA Supports Legislation to Provide Filing Relief for Natural Disasters
The AICPA supports legislation which would extend the IRS’s authority to grant tax relief following state-declared disaster emergencies. It would also expand the mandatory federal filing extension from 60 days to 120 days, which provides taxpayers with additional time to file taxes following a disaster. - March 17, 2023 – AICPA Comments Requesting Lookback Period for Refunds and Credits to Apply to All Disasters Going Forward
AICPA submitted comments to Treasury and IRS requesting that the IRS apply the relief given in Notice 2023-21 regarding the lookback period for allowing tax credits or refunds to all Federally declared disasters. - February 7, 2023 – · 2023 AICPA Compendium of Tax Legislative Proposals – Simplification and Technical Proposals
As part the AICPA tax legislative compendium to Congress, AICPA suggested 11 recommendations for permanent and uniform provisions to aid taxpayers in disaster relief situations. - June 2, 2022 – The AICPA submitted “Bipartisan Retirement Bill Language to Permanently Remove Financial Penalties for Individuals Impacted by Natural Disasters .” The provision would preclude immediate taxation on victims of a disaster event who withdraw up to $22,000 from a qualified plan or individual retirement account and repay the amount within three years.
- November 8, 2021 - The AICPA submitted comments on S. 3173, the Claiming Losses After Disasters Act. Specifically, we support the goal encapsulated in this bill, to permanently provide disaster victims affected by a major federally-declared disaster additional tax relief for damages and losses not reimbursed by insurance.
- October 20, 2021 – The AICPA supports S. 2583, the Disaster Retirement Savings Act, and the efforts to permanently remove financial penalties for individuals impacted by natural disasters who choose to use retirement funds to cover unexpected expenses associated with those disasters.
- September 15, 2021 –The AICPA expressed strong support for “S. 2748, the Filing Relief for Natural Disasters Act”, that would extend the IRS’s authority to grant tax relief following state-declared disasters and states of emergency. The bill would also expand the mandatory federal filing extension from 60 days to 120 days, which provides taxpayers with additional time to file taxes following a disaster.
- June 2, 2021- The AICPA has expressed strong support or the bipartisan "Filing Relief for Natural Disasters Act" introduced by Representatives Judy Chu (D-CA) and John Katko (R-NY). This bill would extend the Internal Revenue Service’s (IRS) authority to grant tax filing relief following state-declared disasters and states of emergency. The legislation also expands the mandatory federal filing extension from 60 days to 120 days, which provides taxpayers with additional time to file their taxes following a disaster.
- July 17, 2017 – AICPA most recent submission of our disaster relief provisions in response to Chairman Hatch’s (Senate Finance Committee) request for tax reform comments. We submitted all 10 of our disaster recommendations in item #5 of our individual tax reform letter.
- 2015 - AICPA Brochure on “Tax Relief for Natural Disaster Victims.” This was used on the Hill to distribute our 10 permanent provisions to various state representatives’ offices. September 24, 2015 – AICPA letters of support (AICPA letter to Reed) (AICPA letter to Vitter) for Title III ( permanent provisions ONLY) of the National Disaster Tax Relief Act of 2015 (H.R. 3110 & S. 1795).
- July 16, 2015 - Rep. Tom Reed introduced the National Tax Relief Disaster Act that incorporates many of the AICPA's proposals.
- Nov. 18, 2014 - AICPA Tax Executive Committee Chair Troy Lewis testified before a Senate small business panel, explaining the impact that the current system is having on taxpayers and their advisers.
- Nov. 22, 2013 - The AICPA provided recommendations for permanent disaster tax relief to the House and Senate tax-writing committees.
Additional Information & Insights
Related Resources
- State Tax Filing Guidance for 2022, 2021, and 2020 Natural Disasters
- AICPA Recommendations for Administrative and Filing and Payment Relief for State and Local Taxes during the Coronavirus Pandemic
- Chart of 2020 States’ Tax Filing Guidance for Coronavirus Pandemic
- 2018 State Tax Filing Guidance for Hurricanes Florence and Michael
- AICPA Disaster Tax Relief Guidance and Resources
- Chart for 2017 State Filing Relief : we are working with other organizations to compile a list of state relief for recent hurricanes and sharing that information with various state CPA societies in case they are interested in pursuing broader relief.
Impact of Uncertainty, Testimony by Troy Lewis (Video)
Tax Relief for Disaster Victims: We Can Do Better, AICPA Insights, January 2014
Predictable Tax Relief Needed for Unpredictable Events, CPA Advocate, Feb. 2014
Visit the AICPA Casualty and Disaster Relief Resource Page for additional information.