NewsNotes

Lesli S. Laffie, J.D., LL.M.

Assistance for Disaster Victims • Casualty Loss Quick Refunds • IRS Toll-Free Number • Multiple Mergers as an A Reorganization • Victim Tax Relief

From the IRS

Assistance for Disaster Victims

Treasury and the IRS have issued a number of pronouncements addressing tax issues stemming from the terrorist attacks on the Pentagon and World Trade Center. President Bush has declared Arlington County, VA and the five boroughs of New York City (Bronx, Kings, New York, Queens and Richmond) disaster areas.

Taxpayers in these areas are eligible for relief, as are "affected taxpayers"—those with a place of employment or records maintained in a disaster area, relief workers and victims on the highjacked planes.

The IRS has offered the following relief in Notice 2001-61:

• Affected individuals with a filing extension beyond Sept. 10, 2001 have until Feb. 12, 2002 to file. This rule does not extend time to pay, but Sept. 11, 2001–Feb. 12, 2002 will be excluded in computing any failure-to-pay penalty.
• Affected taxpayers other than individuals with an original filing deadline (for any Federal tax return) that falls between Sept. 11, 2001 and Nov. 30, 2001 have an additional six months plus 120 days to file. This does not include an extension of time to pay, but Sept. 11, 2001–Jan. 9, 2002 will be excluded from a penalty computation.
• Calendar-year corporations with an extension of time to file their 2000 tax return beyond Sept. 10, 2001 have an additional 120 days to file.
• Affected taxpayers with an estimated payment due after Sept. 10, 2001 and before Jan. 15, 2002 (e.g., a third-quarter estimated tax payment) may postpone the payment to Jan. 15, 2002, without penalty.
• Penalties for failure to deposit excise and employment taxes due between Sept. 11 and Oct. 31, 2001, will be excused if made by Nov. 15, 2001.

Taxpayers entitled to the above-described relief should add "September 11, 2001 Terrorist Attack" in red ink at the top of their returns.

According to IR-2001-83, businesses affected by the attacks can e-mail questions about extensions and other tax relief to corp.disaster.relief@IRS.gov.

Casualty Loss Quick Refunds

According to IR-2001-87, taxpayers who suffered property losses due to the September 11 attacks may get a quick tax refund by claiming these losses on an amended 2000 return. Under Sec. 165(i), affected taxpayers—whether individuals or businesses—in a Presidentially declared disaster area have the option of claiming their casualty losses on the return for the disaster year or the previous year. By amending the 2000 return, a taxpayer obtains a refund in a few weeks, rather than waiting until filing the 2001 return. Taxpayers on extension to file a 2000 return may include the disaster loss on that return.

Taxpayers must reduce the amount of loss by any insurance or other reimbursements received or expected. For personal-use property, individuals must first subtract $100 for each casualty event. From the remaining total losses for the year, they subtract 10% of their adjusted gross income and can take the remaining amount as an itemized deduction.

Taxpayers claiming the loss on an amended or original 2000 return should write "September 11, 2001 Terrorist Attack" in red ink at the top of the return to expedite processing.

Details on claiming these losses are in IRS Pub. 547, Casualties, Disasters and Thefts (Business and Nonbusiness), and in the instructions for Form 4684, Casualties and Thefts. Pub. 584, Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property), will help individuals compute the loss.

Tax forms and publications are available through the IRS Website, www.irs.gov, or by calling (800) 829-3676.

IRS Toll-Free Number

IR-2001-84 states that the IRS has established a toll-free number for taxpayers whose ability to meet Federal tax obligations has been affected by the terrorist attacks. Taxpayers with tax questions related to the attacks can call (866) 562-5227, Monday–Friday, 7 am–10 pm in English, 8 am–9:30 pm in Spanish (local time).

For more information on tax extensions and other tax issues, visit www.irs.gov. Taxpayers with questions not related to the terrorist attacks should visit the IRS Website or call the regular IRS toll-free number, (800) 829-1040.

Multiple Mergers as an A Reorganization

Under Rev. Rul. 2001-46, if pursuant to an integrated plan, a newly formed, wholly owned subsidiary of an acquirer merges into a target, followed by the merger of the target into the acquirer, the transaction is to be treated as a single, statutory merger of the target into the acquirer that qualifies as an A reorganization.

The Service will not apply the ruling's principles to challenge a taxpayer's position as to the treatment of a multistep transaction, one step of which, viewed independently, is a qualified stock purchase (QSP), if:

• A timely and valid election under Sec. 338(h)(10) or (g) is or was filed as to the acquisition of the target's stock.
• Either the (1) target acquisition date is before Sept. 25, 2001 or (2) acquisition of target stock meeting the requirements of Sec. 1504(a)(2) by the purchaser is pursuant to a written agreement binding on Sept. 24, 2001, and at all times thereafter until the acquisition date and (3) taxpayer does not take a position for U.S. tax purposes inconsistent with the treatment of the acquisition as a QSP for which the election was made.

Rev. Rul. 2001-46 amplifies Rev. Rul. 67-274, 1967-2 CB 141, and distinguishes Rev. Rul. 90-95, 1990-2 CB 67.

Legislation

Victim Tax Relief

The Victims of Terrorism Relief Act of 2001 (H.R. 2884), introduced by Ways and Means Committee Chair William M. Thomas (R-CA) and ranking member Charles B. Rangel (D-NY), would:

• Extend Sec. 2201 to reduce estate tax liability by more than half for victims who died in the attacks.
• Exempt from Federal income taxes the income of victims who died as a result of the attacks.
• Ensure that airline benefit payments to victims' families are exempt from Federal income tax, thus providing a $25,000 exemption for passenger payments from United Airlines and American Airlines.
• Clarify that Federal Emergency Management Agency assistance payments are exempt from Federal income tax.

The measure cleared the House by a unanimous vote (418-0).

In the Senate, S. 1433, introduced by Sen. George Allen (R-VA), resembles the House bill, but would completely exempt victims from estate tax. S. 1440, introduced by Sen. Larry E. Craig (R-ID), is identical to the House bill.

S. 1423, introduced by Sen. Jim Bunning (R-KY), would provide tax relief for U.S. military or civilian employees who die as a result of terrorist attacks or military action against the U.S., no matter when or where the actions occur. It would also reduce victims' estate tax liability by more than half and exempt victims from Federal income taxes in the tax year of their death or last tax year of injury.