Editor: Valrie Chambers, Ph.D., CPA
Procedure & Administration
When natural disasters strike, they often affect thousands or millions of taxpayers, and their effects can last for a long time. Many people, for example, are still dealing with the aftermath of Hurricanes Isaac and Sandy, which hit the United States in August and October, respectively. To provide some relief in these situations, the IRS often postpones various filing, deposit, and, sometimes, payment deadlines for affected taxpayers.
The authority for this postponement is in Sec. 7508A and Regs. Sec. 301.7508A-1. The regulations provide sufficient examples for practitioners to use in determining client filing dates and payment obligations as a consequence of the postponement.
The three areas of most concern to practitioners are the filing date for extended returns; the filing date for returns with a due date during the postponement period; and whether penalties and interest apply for the postponement period to extended returns that had a balance due at the date the extension was filed (the original due date).
For Sec. 7508A postponement periods, not all penalties and interest are suspended. Notably, interest and penalties will continue to accrue if payment was due prior to the date of the disaster. So, a taxpayer affected by Hurricane Isaac, on extension to file 2011 returns through Oct. 15, 2012, may take as long as until Jan. 11, 2013, to file without incurring a failure-to-file penalty under Sec. 6651(a)(1). However, absent the rarely granted extension of time to pay under Sec. 6161, underpayment or nonpayment penalties and interest continue from the April 17, 2012, extension filing date through the date of payment, uninterrupted by the disaster, because the payment due date preceded the postponement period. The taxpayer may assert reasonable cause under Sec. 6651(a)(2), but the results are uncertain, and the appeal may be costly.
Practitioners who have clients affected by Sec. 7508A postponement periods should be familiar with the Code sections and regulations and have them handy for reference. Practitioners may wish to caution or prepare their clients for otherwise unexpected penalties and interest bills that those clients may believe were not applicable due to the postponement period. Any IRS notices and computations received should be read carefully to be sure the applicable relief has been taken into consideration. If failure-to-file, failure-to-pay, or failure-to-deposit penalties were levied, a practitioner may apply for a first-time abatement waiver if no such penalties have been assessed on that taxpayer for the last three years (Internal Revenue Manual §126.96.36.199.6.1). Here are details on postponements for the two recent hurricanes.
The IRS announced on Sept. 5, 2012 (IR-2012-70), that it was postponing filing and payment deadlines for victims of Hurricane Isaac in certain Louisiana parishes and Mississippi counties. (The announcement was subsequently updated to include a wider disaster area within the two states.) The storm first made landfall in the U.S. mainland in Louisiana on Aug. 28, 2012.
Specifically, for taxpayers in the affected areas, the payments, deposits, and returns normally due on or after Aug. 26, 2012, may be made through Jan. 11, 2013, without accruing penalties and interest. This includes taxpayers whose 2011 return filing deadline had previously been extended until Sept. 17 or Oct. 15, 2012, and those with estimated tax payments normally due Sept. 17. The IRS will abate any related late-payment or late-filing penalties or interest. (Note that interest and penalties will continue to accrue if payment was due prior to Aug. 26 under Sec. 7508A.)
In addition, failure-to-deposit penalties for federal employment and excise taxes due on or after Aug. 26 and before Sept. 10, 2012, were waived if the deposits were made by the latter date.
In November, the IRS announced postponement of tax filing and payment deadlines for taxpayers in areas of New York, New Jersey, Connecticut, and Rhode Island affected by Hurricane Sandy (IR-2012-83). Taxpayers with filing and payment deadlines starting in late October are being given until Feb. 1, 2013, to file returns and pay taxes due. The postponements include individual estimated tax payments, third and fourth quarter payroll and excise taxes, and returns for tax-exempt organizations. The IRS will also abate interest and any late-payment or late-filing penalties that would otherwise apply. For more details, see News Notes.
Valrie Chambers is a professor of accounting at Texas A&M University–Corpus Christi in Corpus Christi, Texas. Gerard Schreiber is a partner with Schreiber & Schreiber CPAs in Metairie, La. Prof. Chambers is a member of the AICPA Tax Division’s IRS Practice and Procedures Committee. Mr. Schreiber is a member of the AICPA Tax Practice Responsibilities Committee. For more information about this column, contact Prof. Chambers at firstname.lastname@example.org.