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.
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:
- June 2, 2021- The AICPA has expressed strong support or the bipartisa"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
- State Tax Filing Guidance for 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 Casualty Loss Practice Guide : Guide to assist practitioners in dealing with certain tax problems that arise when a client is affected by a natural disaster; discusses rules for casualty losses and deductions for involuntary conversions, and provides information on relevant IRS publication.
- 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.