The Internal Revenue Service has announced a number of relief measures as a result of Hurricane Katrina. In addition, the Internal Revenue Code contains two other very helpful provisions for hurricane victims. This Coalition Alert briefly summarizes relief so far provided. Most IRS documents mentioned are available on the IRS website at www.irs.gov.
Filing and Payment Deadlines Extended
Victims of the hurricane who live in, or whose business or business records are located in, one of the disaster areas in Alabama, Florida, Louisiana, or Mississippi declared by the President will have until January 3, 2006, to file any returns, pay any taxes, or make any tax deposits due. See IR-2005-96 (September 8, 2005). This relief includes the September 15 due date for estimated tax payments, and for calendar year corporate returns that were extended, as well as the October 31 deadline for filing quarterly federal employment and excise tax returns. The counties and parishes included in the disaster areas are listed in IR-2005-91 (September 2, 2005). The IRS has also extended the time it will have to make assessments, collect taxes, etc. See Notice 2005-66 (September 8. 2005).
Advice for Donations
The IRS also provided advice for taxpayers who want to make donations to help hurricane victims. On its website at www.irs.gov, under Charities and Non-Profits, the IRS recommends that donors read its Publication 3833, “Disaster Relief,” which also can be downloaded from the IRS site. Publication 3833 was first posted after the September 11, 2001 attacks, and provides useful guidance on identification of qualified donees, and how to make donations. IRS has also posted on its website a link to the Federal Emergency Management Agency list of disaster relief organizations to which taxpayers can donate.
Leave Donation Programs
In Notice 2005-68 (September 8, 2005), the IRS announced that, as was true after the September 11, 2001 attacks, it will permit employers to adopt programs under which employees may elect to forego vacation, sick or personal leave in exchange for cash donations by the employer to charitable relief organizations. The IRS will not assert that the cash payments made to charities are income or wages to the contributing employees if the payments are made to a qualified charity before January 1, 2007, and it will agree that employers are permitted to deduct the payments as business expenses rather than charitable contributions. Electing employees, however, are not permitted to claim a charitable donation deduction on their personal returns.
Disaster Relief Payments
After the September 11, 2001 attacks, Congress enacted new legislation under which qualified disaster relief payments to individuals from either public or private sources (such as the individual's employer) are excluded from income. Under section 139 of the Code, taxpayers in a presidentially declared disaster area who receive grants from state programs, charitable organizations, employers, or other sources to cover medical, transportation, or personal living or temporary housing expenses, or expenses incurred for the repair or rehabilitation of a personal residence, or expenses to repair or replace the contents of the residence, are not taxable on these payments. However, payments are taxable to the extent the expense is compensated for by insurance. Payments for lost wages or other income replacement remain taxable. This provision is explained at some length in Rev. Rul. 2003-12, 2003-1 C.B. 283, in Publication 3920, “Tax Relief for Victims of Terrorist Attacks”, and in Publication 547, “Casualties, Disasters, and Thefts.”
Section 139 will allow ERC member companies to provide substantial aid to their own employees who are affected by Hurricane Katrina without incurring liability for employment tax. For example, temporary living, home repairs, and other benefits can be provided without tax consequence.
Ending uncertainty caused by a 2004 IRS Legal Memorandum (ILM 200431012, June 29, 2004) that treated as taxable to the recipients grant payments made under FEMA programs to mitigate flood losses by elevating structures located in flood-prone areas, Congress amended section 139 in 2005 to permit exclusion of these payments as well. See section 139(g).
Note, however, that IRS has held that disaster relief grants to businesses do not qualify for exclusion, either under section 139 or as gifts or general welfare payments. See Rev. Rul. 2005-46, 2005-30 IRB 120.
Disaster Area Losses Deductible Early
Under section 165(i) of the Code, both business and individual taxpayers can elect to deduct casualty losses incurred in presidentially declared disaster areas on a return or amended return for the year that precedes the year of the loss. That is, taxpayers who suffered casualty losses (for example, to their home or their business inventory) as a result of Hurricane Katrina can elect to amend their 2004 returns to claim the losses early, rather than waiting to claim them on 2005 returns that are not filed until 2006. As a result, taxpayers can get a refund of 2004 taxes to assist with replacing or repairing the damaged property. Losses are not deductible, however, to the extent compensated by insurance or otherwise (for example, by disaster relief payments). This provision is explained in more detail in Publication 547, noted above.
Optional Mileage Rates Increased
Due to the recent increases in fuel prices, the IRS has revised the optional standard mileage rates for use of an automobile for business, medical, or moving expense purposes. Announcement 2005-41 (September 9, 2005). The new rates are 48.5 cents per mile for business use (up from 40.5 cents) and 22 cents per mile for medical and moving, up from 15 cents. The new rates are effective for travel on or after September 1, 2005.
On September 6, 2005, the IRS, the Labor Department's Employee Benefit Security Administration and the Pension Benefit Guarantee Corporation jointly announced an extension of the period during which certain employee benefit plans may make required minimum funding contributions or apply for waivers. Such plans will have until October 31, 2005 , to act. Notice 2005-60 (2005-39 IRB 1). The IRS said it is also working on guidance to ease the making of hardship distributions from deferred compensation plans.