February 02, 2012
The year 2011 was a challenging one; weather wise for many U.S. citizens considering the onset of Hurricanes Irene and Lee and other tropical storms and wildfires. The Internal Revenue Service (“IRS”) has recognized the toll these disasters have on individuals and businesses and has issued relief provisions that aid victims of presidential declared disaster areas. These announcements can be found on the IRS website (irs.gov) or within Federal Emergency Management Agency (“FEMA”) announcements. A taxpayer does not always have to be directly located in one of these areas to qualify. The IRS takes into account that the taxpayer’s records might be at a location in one of these disaster areas (alternative location, accountant’s office, storage, etc...).
Taxpayer relief generally includes extensions of deadlines and a reduction/elimination of penalties in disaster areas. Relief may also allow the taxpayer to deduct casualty losses that occurred to property as a result of the disaster. Generally casualty losses are deductible in the year that they occurred. However, if the taxpayer’s loss is from a federally declared disaster area, the taxpayer can choose to treat the loss as having occurred in the year immediately preceding the tax year of the disaster. This loss can be taken on an amended return, which might be the best option for a taxpayer that needs the refund quickly. However, this may not maximize the casualty loss deduction and numerous other factors need to be considered when determining what year to take the casualty loss.
The major relief for 2011 was related to Hurricane Irene which effected people in Puerto Rico, North Carolina, New Jersey, New York, Connecticut, Massachusetts, New Hampshire, Pennsylvania, Vermont and Puerto Rico.