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IRS extends filing and payment deadlines, provides more relief for Hurricane Sandy victims

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The IRS has announced a number of relief measures to help victims of Hurricane Sandy, including extended filing and payment deadlines. The IRS also reminded taxpayers of special casualty loss rules that could accelerate a refund.

Taxpayers eligible for relief

As of November 30, 2012, the IRS has designated the following areas as Hurricane Sandy disaster areas:

  • Connecticut (starting October 27, 2012): Fairfield, Middlesex, New Haven, and New London Counties, and the Mashantucket Pequot Tribal Nation and Mohegan Tribal Nation.
  • New Jersey (starting October 26, 2012): Atlantic, Bergen, Burlington, Camden, Cape May, Cumberland, Essex, Gloucester, Hudson, Hunterdon, Mercer, Middlesex, Monmouth, Morris, Ocean, Passaic, Salem, Somerset, Sussex, Union, and Warren Counties.
  • New York (starting October 27, 2012): Bronx, Kings, Nassau, New York, Orange, Putnam, Queens, Richmond, Rockland, Sullivan, Suffolk, Ulster and Westchester Counties.
  • Rhode Island (starting October 26, 2012): Newport and Washington Counties.

Relief is available to a large number of taxpayers. They include, but are not limited to, an individual whose principal residence is located in the disaster area, a business entity or sole proprietor whose principal place of business is in the disaster area, and an individual or business whose principal residence/place of business is not in the disaster area but whose books and records are in the disaster area. Relief workers are also covered.

Types of relief

Extended filing/payment deadlines. Generally, affected taxpayers have until February 1, 2012 to file most returns and pay any taxes due. Included in this relief is the fourth quarter individual estimated tax due on January 15, 2013. Relief also includes payroll and excise tax returns and accompanying payments for the third and fourth quarters, normally due on October 31, 2012 and January 31, 2013, respectively. The IRS will abate any interest, late-payment or late-filing penalty that would otherwise apply.

Retirement plan loans/hardship distributions. The IRS will allow expedited and expanded loan and hardship withdrawals from qualifying employer-sponsored retirement plans to help victims of Hurricane Sandy. Retirement plans can provide this relief to employees and certain members of their families who live or work in the disaster area. To qualify for this relief, hardship withdrawals must be made by February 1, 2013.

Leave donations. A leave donation program allows employees to donate their vacation, sick or personal leave in exchange for employer cash payments made to qualified tax-exempt organizations providing relief for the victims of Hurricane Sandy. The donated leave will not be included in the income or wages of the employees and employers will be permitted to deduct the amount of the cash payment. Generally, employees can forgo leave in exchange for employer cash payments made before January 1, 2014.

More measures. The IRS also announced it will expedite applications for tax-exempt status from charitable organizations set up to help Hurricane Sandy victims, waive certain dyed diesel fuel penalties, expand availability of housing for Hurricane Sandy victims, and treat certain payments as qualified disaster relief payments.

Casualty loss

Casualty losses are generally deductible in the year the casualty occurred. However, a special rule applies to taxpayers in a federally-declared disaster, such as the Hurricane Sandy disaster area. These taxpayers may treat the loss as having occurred in the year immediately prior to the tax year in which the disaster happened. The taxpayer can deduct the loss on his or her return or amended return for that preceding tax year. This option allows taxpayers to get an immediate refund, instead of having to wait until they file their return for the year of loss.

A personal casualty loss is subject to a $100 floor and to a 10 percent of adjusted gross income (AGI) limitation. The $100 floor and 10 percent of AGI limitations do not apply to a business or income-producing property casualty loss.