Disaster Tax Relief 


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.

AICPA Position
    The AICPA developed 10 recommendations to improve the patchwork situation that currently exists and also make tax compliance easier during this difficult time. These proposals could help homeowners and business owners alike with the expensive and often long process of recovery.

    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:

        • 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


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