Penalty & Interest
Is there any interest relief for taxpayers who have balances due that arise during the disaster relief period for prior year returns?
No. The IRS will not abate interest on balances due on liabilities for prior years. However, the IRS will consider waiving late payment penalties when the reason for the late payment is due to reasonable cause related to the disaster.
What, if any, relief is accorded to installment agreement payments that become due during the disaster relief period?
Installment agreement payments due during the disaster relief period are suspended. After the postponement period has ended, the installment agreement will be reinstated (without a fee). You will be required to resume making payments in accordance with the terms of the installment agreement beginning the month that follows the end of the postponement period.
Are mitigation payments under Code section 139 tax-free?
Qualified disaster mitigation payments are excludable from the recipient’s income. Such payments are amounts paid under the Robert T. Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act (as in effect on April 15, 2005) to or for the benefit of the owner of any property for hazard mitigation. There is no resulting increase in the basis or adjusted basis of the property for which the payments are made. No person for whose benefit a qualified disaster mitigation payment is made can take a deduction or credit due to an expenditure for which exclusion for a payment is granted. The exclusion does not apply to amounts received for the sale or disposition of property.
Do you have to subtract FEMA payments in arriving at the calculation for your net casualty loss?
Food, medical supplies, and other forms of assistance you receive do not reduce your casualty loss, unless they are replacements for lost or destroyed property. When calculating your casualty loss, if the payment is for replacement of lost or destroyed property, then you would subtract the amount in figuring your casualty loss.
Taxable State Recovery Payments
How do reimbursements from state funds to compensate for property damage that are received in a subsequent year affect a homeowner’s casualty loss and basis computations?
If a taxpayer properly claimed a casualty loss deduction and in a later year receives reimbursement for the loss, the taxpayer reports the amount of the reimbursement in gross income in the tax year it is received to the extent the casualty loss deduction reduced the taxpayer’s income tax in the year in which the taxpayer reported the casualty loss deduction. If the subsequent year reimbursement exceeds the amount of the casualty loss deduction, the taxpayer reduces basis in the property by the amount of such excess. In addition, the taxpayer includes such excess in income as gain to the extent it exceeds the remaining basis in the property, unless such gain can be excluded from income or its recognition can be deferred.
What if a net operating loss (NOL) was generated on the original return, would a taxpayer amend all amended returns and Form 1045?
No. If a taxpayer properly claimed a casualty loss deduction and in a later year receives reimbursement for the loss, the taxpayer reports the amount of the reimbursement in gross income in the tax year it is received to the extent the casualty loss deduction reduced the taxpayer’s income tax in the tax year in which the taxpayer reported the casualty loss deduction or reduced income tax in a prior year as a result of an NOL caused by a casualty loss deduction. See the preceding question for guidance if the subsequent year reimbursement exceeds the amount of the casualty loss deduction.