Tax Relief for Disaster Victims: We Can Do Better, Sooner
In 2005, when Hurricane Katrina hit landfall along the Gulf Coast, the Katrina Emergency Tax Relief Act of 2005 (H.R. 3768) was introduced and passed by Congress in less than two weeks.
Unfortunately, this prompt response is not the standard model each time a disaster occurs. Relief offered through the tax system varies, and as explained in the AICPA’s comment letter submitted to Congress last November, “this process results in taxpayers receiving different treatment for similar losses and not knowing what tax treatment they will receive until Congress enacts some form of relief, which frequently occurs long after the disaster.”
Another example of Congress’ delay in tax disaster provisions is evident in the timeline for pending Hurricane Sandy relief. The Hurricane Sandy Tax Relief Act of 2012 was introduced in December, then updated and re-introduced a year later as the Hurricane Sandy Tax Relief Act of 2013. Today, more than two years after the anniversary of this destructive storm that affected over 24 states and caused severe damage to New Jersey and New York, taxpayers and business owners have yet to receive any tax relief.
These natural disasters are only some of the countless tragedies that strike our nation and affect taxpayers each year. Storms, fires and mudslides often cause far-reaching consequences that extend across state borders, and the individual and self-employed taxpayers whose lives are altered by these tragedies should know in a timely manner whether they are eligible for any tax relief.
The AICPA has proposed a list of 10 permanent disaster relief tax provisions for Congress to consider and recommended that these provisions take effect immediately when a triggering event occurs. Some examples of the proposed provisions include:
- Extending Net Operating Loss carryback (under Section 172(b)(2)) from two years to five years.
- Increasing the replacement period (under Section 1033(a)(2)(B)) from two years to five for property damaged or destroyed by a disaster event.
- Allowing victims of a disaster event to exclude from taxable income (under Section 108), the cancellation of debt income for non-business debts.
As stated in our comments to Congress, we believe that by “implementing permanent disaster relief provisions as foundational aid, taxpayers will have certainty, fairness, and the ability to promptly receive the relief they need after a natural disaster.” As part of our advocacy efforts, the AICPA Tax Division continues to communicate with Congress, the IRS and state CPA societies to promote permanent tax provisions for disaster relief, and we encourage our members and any stakeholders to support this effort.
Amy Wang, CPA, Technical Manager - Tax, American Institute of CPAs. Amy serves as the technical manager for the Individual & Self-Employed Tax Technical Resource Panel, as well as the Exempt Organizations Tax Technical Resource Panel and related task forces. She also sits on the planning committee for both the AICPA Not-for-Profit Industry Conference and the Conference on Tax Strategies for the High-Income Individual. She has public accounting experience in federal and state taxation and holds a BS in Accounting with a Minor in International Business from Penn State University.