The Internal Revenue Service (IRS) has granted relief by extending the time for certain taxpayers to file their returns. In addition, there are special rules affecting gain and loss recognition from casualty losses incurred in these Presidential-declared disaster areas. The IRS has issued announcements granting relief to taxpayers impacted by Hurricanes Fiona and Ian. The relief applies to individuals and households that reside or have businesses anywhere in Puerto Rico, Florida, North Carolina, and South Carolina.
Impacted individuals and businesses will now have until February 15, 2023, to file returns and pay any taxes initially due during this period. This relief includes taxpayers with valid extensions to file their 2021 returns, previously due to be filed on October 17, 2022. The relief does not apply to payments for 2021 returns due on April 18, 2022.
The IRS is making this relief available to any area designated by the Federal Emergency Management Agency (FEMA). The FEMA declarations permit the IRS to postpone specific tax-filing and tax-payment deadlines for taxpayers who reside or have a business in disaster areas. The due date, February 15, 2023, also applies to other returns and payments:
1) Quarterly estimated income tax payments that, under other circumstances, would have been due on January 17, 2023.
2) Quarterly payroll and excise tax returns usually due on October 31, 2022, and January 31, 2023.
3) Penalties on payroll and excise tax deposits after the September dates listed below and before October 10, 2022, will be abated as long as the deposits are made by October 11, 2022.
4) Businesses with an original or extended due date within the postponement period can also take advantage of the extended due date. The new due date includes calendar-year corporations whose 2021 extensions must be filed by October 17, 2022, and tax-exempt organizations, including 2021 calendar-year returns whose 2021 extensions end on November 15, 2022.
5) Form 5500 series returns are due on or after September 15, 2022, and before February 15, 2023.
6) Transferors who are not affected but are involved in a section 1031 like-kind exchange under Section 17.02(2) of Rev. Proc. 2018-58.
Presidential disaster declarations offer taxpayers unique options for gain or loss recognition. Those who have casualty losses in a Presidentially-declared disaster area may qualify to recognize losses in the year before the casualty occurred under section 165(i). Taxpayers who realize gains by receiving insurance proceeds above basis may be able to defer gain recognition by reinvesting in qualified property under section 1033.
Puerto Rico: Filing and payment deadlines starting on or after September 17, 2022, and before Feb. 15, 2023, will be postponed to February 15, 2023
Florida: Filing and payment deadlines starting on or after September 23, 2022, and before Feb. 15, 2023, will be postponed to February 15, 2023
South Carolina: Filing and payment deadlines starting on or after September 25, 2022, and before Feb.15, 2023, will be postponed to February 15, 2023.
North Carolina: Filing and payment deadlines starting on or after September 28, 2022, and before Feb.15, 2023, will be postponed to February 15, 2023.
Penalty relief in disaster areas
The IRS also announced areas covered by certain FEMA disaster declarations, so taxpayers may have more time to file their returns to qualify for the penalty relief under Notice 2022-36 for their 2019 and 2020 tax returns, as outlined below.
Areas with a deadline of November 15, 2022, include:
o Counties in Missouri identified under FEMA’s Major Disaster Declaration 4665.
o Counties in Kentucky placed under FEMA’s Major Disaster Declaration 4633.
o The island of St. Croix in the U.S. Virgin Islands.
o Members of the Tribal Nation of the Salt River Pima Maricopa Indian Community.
The relief provided under Notice 2022-36 applies to the failure-to-file penalty typically assessed at a rate of 5% per month, up to 25% of the unpaid tax, when a federal income tax return is filed late. This relief applies to forms in the Form 1040 and 1120 series and others listed in Notice 2022-36. The failure-to-file penalty, the failure-to-pay penalty, and interest will still apply to any unpaid tax. The failure-to-pay penalty usually is 0.5% (one-half-of-one percent) per month, up to 25%. The interest rate is currently 6%, compounded daily.
The IRS emphasizes that the penalty relief for 2019 and 2020 returns is unavailable in situations such as where a fraudulent return was filed, where the penalties are part of an accepted offer in compromise or a closing agreement, or where a court finally determined the penalties.
Our CPAs are available, and we have the knowledge, skill, and information that you need right now to address your accounting, tax and financial needs. Contact us today.
Maria Stromple, CPA, MST
Maria is a Partner at Wilke & Associates, serving closely held businesses in manufacturing, real estate, transportation/logistics, technology industries, and high net worth individuals and executives in delivering effective tax strategies.