IRS Provides Tax Relief to Victims
of Hurricanes Harvey and Irma
Extension Filers Have Until January 31 to File
and Additional Relief is Planned

Michael Sexton, CPA, CCIFP
Focused on You. Dedicated to Your Success.

The IRS issued a press release on September 12, 2017 announcing that victims of Hurricane Irma have additional time to file their tax returns. The IRS provided the same type of relief to victims of Hurricane Harvey earlier this month. 

Extended Filing and Payment Dates
The tax relief postpones various tax filing and payment deadlines that occurred starting on September 4, 2017 in Florida and Texas and September 5, 2017 in Puerto Rico and the Virgin Islands. Affected individuals and businesses now have until January 31, 2018, to file returns and pay any taxes that were originally due during this period.

This includes the September 15, 2017 and January 16, 2018 deadlines for making quarterly estimated tax payments. For individual tax filers, it also includes 2016 income tax returns on extension until October 16, 2017. Because tax payments related to these 2016 returns were originally due on April 18, 2017, those payments are not eligible for this relief.

A variety of business tax deadlines are also affected including the October 31 deadline for quarterly payroll and excise tax returns. Businesses with extensions also have the additional time including, among others, calendar-year partnerships whose 2016 extensions run out on September 15, 2017 and calendar-year tax-exempt organizations whose 2016 extensions run out on November 15, 2017. The IRS’ disaster relief page has details on other returns, payments and tax-related actions qualifying for the additional time.

The IRS is also waiving late-deposit penalties for federal payroll and excise tax deposits normally due during the first 15 days of the disaster period.

Casualty Losses
Affected taxpayers have the option of claiming disaster-related casualty losses on their federal income tax return for either the year in which the event occurred, or the prior year. Individuals may deduct personal property losses that are not covered by insurance or other reimbursements by filing Causalities and Theft ( Form 4684 ). Click here to learn more information on Form 4684.

Affected taxpayers claiming the disaster loss on a 2016 return should put the Disaster Designation, “Covered Area (Texas, Florida, Puerto Rico or U.S. Virgin Islands), Hurricane Irma” at the top of the form so that the IRS can expedite the processing of the refund.

Retirement Plans Loans and Hardship Distributions
Participants in 401(k) plans, employees of public schools and tax-exempt organizations with 403(b) tax-sheltered annuities, as well as state and local government employees with 457(b) deferred-compensation plans may be eligible to take advantage of streamlined loan procedures and liberalized hardship distribution rules. Though IRA participants are barred from taking out loans, they may be eligible to receive distributions.
Retirement plans can provide this relief to employees and certain members of their families who live or work in covered disaster areas affected by Hurricanes Harvey and Irma. 

The IRS is also relaxing procedural and administrative rules that normally apply to retirement plan loans and hardship distributions. As a result, eligible retirement plan participants will be able to access their money more quickly with a minimum of red tape. In addition, the six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply.

A retirement plan can allow victims of Hurricanes Harvey and Irma to take a hardship distribution or borrow up to the specified statutory limits from their retirement plan. People who live outside the covered disaster area can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent, or other dependent who lives or works in a disaster area.

Plans will be allowed to make loans or hardship distributions before the plan is formally amended to provide for such features. In addition, the plan can ignore the reasons that normally apply to hardship distributions, thus allowing them, for example, to be used for food and shelter. If a plan requires certain documentation before a distribution is made, the plan can relax this requirement as described in IRS Announcement 2017-13 .

The tax treatment of loans and distributions remains unchanged. Retirement plan loan proceeds are typically tax-free if they are repaid over a period of five years or less. Under current law, hardship distributions are generally taxable and subject to a 10-percent early-withdrawal tax.

Diesel Fuel Penalty
In response to shortages of undyed diesel fuel caused by Hurricanes Harvey and Irma, the IRS will not impose a penalty when dyed diesel fuel is sold for use or used on the highway in the state of Florida and in certain areas of Texas. 

Consistent with the Environmental Protection Agency (EPA) waiver regarding use of non-road diesel locomotive and marine fuel, this relief will remain in effect through September 15 in Texas and September 22, 2017 in Florida.  

This penalty relief is available to any person that sells or uses dyed fuel for highway use. In the case of the operator of the vehicle in which the dyed fuel is used, the relief is available only if the operator or the person selling the fuel pays the tax of 24.4 cents per gallon that is normally applied to diesel fuel for highway use. The IRS will not impose penalties for failure to make semimonthly deposits of this tax. 

Ordinarily, dyed diesel fuel is not taxed, because it is sold for uses exempt from excise tax, such as to farmers for farming purposes, for home heating use and to local governments for buses.

Also, consistent with the EPA waiver, the diesel fuel waiver does not apply to the Internal Revenue Code penalty for using adulterated fuels that do not comply with applicable EPA regulations. Diesel fuel with sulfur content higher than 15 parts-per-million may not be used in highway vehicles. The IRS is closely monitoring the situation and will provide additional relief as needed.

Affected Taxpayers
Affected taxpayers include individuals who live in, as well as businesses and tax-exempt organizations whose principal place of business is in a covered disaster area. 

Taxpayers who are not located in a covered disaster area but have records that are necessary to complete their tax returns in said area are also entitled to relief. See Treas. Reg. § 301.7508A-1(c) for more information. 

Relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in a covered disaster area are entitled to relief. So are individuals visiting the area who were killed or injured as a result of the disaster.

If an affected taxpayer receives a late filing or late payment penalty notice from the IRS, they should call the telephone number on the notice to have the IRS abate the penalty.

Covered Disaster Areas
IRS filing and payment relief applies to the following localities identified by the Federal Emergency Management Agency (FEMA) for individual assistance due to Hurricanes Harvey and Irma:
  • In Texas: The counties of Aransas, Austin, Bastrop, Bee, Brazoria, Calhoun, Chambers, Colorado, DeWitt, Fayette, Fort Bend, Galveston, Goliad, Gonzales, Hardin, Harris, Jackson, Jasper, Jefferson, Karnes, Kleberg, Lavaca, Lee, Liberty, Matagorda, Montgomery, Newton, Nueces, Orange, Polk, Refugio, Sabine, San Jacinto, San Patricio, Tyler, Victoria, Walker, Waller, and Wharton.
  • In Florida: The counties of Brevard, Broward, Charlotte, Citrus, Clay, Collier, DeSoto, Duval, Flagler, Glades, Hardee, Hendry, Hernando, Highlands, Hillsborough, Indian River, Lake, Lee, Manatee, Marion, Martin, Miami-Dade, Monroe, Okeechobee, Orange, Osceola, Palm Beach, Pasco, Pinellas, Polk, Putnam, Sarasota, Seminole, St. Johns, St. Lucie, Sumter, and Volusia.
  • In Puerto Rico: The municipalities of Culebra, Vieques, Canóvanas and Loíza.
  • In the U.S. Virgin Islands: The islands of St. John and St. Thomas.

FEMA may add more disaster areas to the list. Taxpayers in localities added later, including those in other states, will automatically receive the same filing and payment relief. The current list of eligible localities is available on the disaster relief page on IRS.gov.

Hurricanes Harvey and Irma IRS Information Centers 
The IRS established Information Centers for victims of Hurricane Harvey and Hurricane Irma . Included is comprehensive information on the relief programs offered by the IRS, as well as other valuable information on:
  • Reconstructing Your Records 
  • Disaster Assistance and Emergency Relief 
  • Relief for Tax-Exempt Organizations 

Additional Resources
For additional information provided by the Federal Government on disaster recovery, visit the Hurricane Harvey page or Hurricane Irma page on USA.gov. A wealth of information is available on how to apply for disaster assistance, how to identify scam artists and fraud, where you can get help if you are feeling distressed and where to find trusted resources. FEMA also has valuable information to share on Hurricane Harvey and the Hurricane Irma .

Feel free to call us at 610.828.1900 if you, a member of your family, or business associate is impacted by Hurricanes Harvey and Irma. Contact either Michael Sexton, CPA, CCIFP, Director – Tax Services at Michael.Sexton@MCC-CPAs.com or me at Marty.McCarthy@MCC-CPAs.com . We are always happy to help.
Martin C. McCarthy, CPA
Managing Partner
McCarthy & Company, PC

Disclaimer This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice, and cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).