# Presentation: 745686

## Tax Relief in Disaster Situations

## Objectives 

- Provide an Overview of Disaster Rules
- Outline Information Needed to Prepare a Casualty Loss
- Compute a Casualty Gain and Loss
- Review IRS Transcripts
- Discuss Sources of Assistance

## Overview of Disaster Rules

- Casualty Loss Rules
- Presidentially Declared Disaster Areas
- Hurricane Katrina

## Casualty Determination

- A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is _sudden_, _unexpected_, or _unusual_.

## Examples of Casualty

- Automobile Accident
- Fire
- Flood
- Theft
- Hurricane
- Earthquake

## Disaster Area Loss

- A Presidentially Declared Disaster is a disaster that occurred in an area determined by the President of the United States to be eligible for Federal assistance.
- Robert P. Stafford Disaster Relief & Emergency Assistance Act

## Presidentially Declared Disaster Areas

- List of the Presidentially Declared Disasters
_**http://www.fema.gov**_** **
- IRS Disaster Relief Information:
_**http://www.irs.gov/newsroom/index.html**_** **

## Hurricane Katrina – Special Rules

- Waiving $100 Deduction
- Waiving 10% AGI Limitation
- Extension of Replacement Period on Gain
- _[http://www.irs.gov](http://www.irs.gov/)_
- Katrina Emergency Tax Relief Act of 2005

## Taxpayer Information Needed to Calculate Casualty Loss

- Property lost
- Fair Market Value (FMV) of property
-  Prior to loss
-  After the loss
- Basis
- Insurance Coverage
- Prior Year Tax Return Information

## To Prove a Loss - Records

- Vehicle
- Business Property
- Real Property
- Personal Use Property
- Records Reconstruction – _http://www.irs.gov/businesses/small/article/0,,id=147164,00.html_

## Information Needed for Casualty Loss – From IRS

- Forms and Publications
- Copies of Returns or Return Information

## IRS Publications

- IRS Disaster Losses Kit contains publications, forms, and worksheets that are helpful in reporting casualty losses:
- Publication 2194 - For Individuals
- Publication 2194B - For Businesses

## IRS Publications

- Publication 547 – Casualties, Disasters, and Thefts
- Publication 584 – Casualty, Disaster, and Theft Loss Workbook
- Publication 536 – Net operating Losses (NOLs) for Individuals, Estates, and Trusts

## IRS Forms

- 4506 – Request for Copy of Tax Return
- 4506-T – Request for Transcript of Tax Return
- 4684 - Casualties and Thefts
- Form 1040 Schedule A – Itemized Deductions
- 1040X – Amended U. S. Individual Income Tax Return
- 1045 – Application for Tentative Refund

## Tax Return/ Return Information

- Copies of Prior Year Returns
- Fee waived in a Presidentially Declared Disaster Area
- Transcript Request
- Write in red “Hurricane (_Name_)”
-    at the top of all IRS forms filed related to a disaster

## Disaster Loss Considerations

- Claim on prior year tax return
- Claim on current year tax return

## Compute a Casualty Gain and Loss

- 1.  Determine:
- a. adjusted basis before disaster
- b. decrease in fair market value (FMV) as a result of disaster
- 2.  Subtract any insurance or other reimbursement received from the smaller of (a) or (b) above

## Compute a Casualty Gain and Loss (cont’d.)

- Casualty losses of personal-use property and employee property is reduced by:
- $100 “deductible” per event for personal use property
- 10% of AGI for personal use property
- These limitations do not apply to Hurricane Katrina
- Losses

## Compute a Casualty Gain and Loss (cont’d.)

- Presidentially Declared Disaster Areas:
- No gain is recognized on any insurance proceeds received for “unscheduled” personal property that was part of the contents of a main home
- Instructions for Form 4684 – Casualties and Thefts

## Compute a Casualty Gain and Loss (cont’d.) 

- Presidentially Declared Disaster Areas:
- Insurance proceeds treatment – one event
- Home
- Scheduled Property
- Instructions for Form 4684 – Casualties and Thefts

## Gains on Casualty

- If you receive an insurance payment or other reimbursement in excess of the adjusted basis of damaged or destroyed property you will have a gain.

## Gains on Casualty - Options

- Postpone
- Sale of Personal Residence
- Gain from Involuntary Conversion
- Do Not Postpone
- Gain Reported

## Gains on Casualty

- Generally, you cannot postpone gain if you buy replacement property from a related party
- Applies to:
- C Corporation
- Partnerships in which more than 50% of the capital or profits is owned by a C Corp
- All others if the total realized gain for the year is over $100,000.

## Reporting Casualty Gains/Losses

- Personal-use property:
- Losses - Report on Form 4684 and carry to   Schedule A, Itemized Deductions
- Gains - Report on Form 4684 and carry to    Schedule D, Capital Gains/Losses

## Insurance Reimbursement

- Less than Expected
- More than Expected

## Net Operating Losses

- Individual or business casualty losses can generate Net Operating Losses (NOLs)
- Carry Back
- Carry Forward

## Other Payments

- Presidentially Declared Disaster Areas:
- Disaster relief payments or assistance do not reduce the casualty loss amount unless they replace lost or destroyed property
- Income replacement payments, such as unemployment compensation, are taxable

## Other Payments (cont’d.)

- FEMA Mitigation Payments are NOT includible in income:
- Flood Mitigation Assistance Program (FMA)
- Pre-Disaster Mitigation Program (PDM)
- Hazard Mitigation Grant Program  (HMGP)
- **No increase in basis or adjusted basis for payments
-     received under these programs

## Examples

- Loss
- Gain
- Net Operating Loss
- Background
- FMV Before - $100,000
- FMV After - $0
- Basis - $75,000
- 2004 AGI - $60,000

## Obtaining IRS Transcripts

- Call
- Walk In
- IRS
- FEMA
- Mail
- FAX
- TAS

**Return Transcript **
**Handout**

## Account Transcript 

**1**

**2**

**3**

**Account Transcript **
**Handout**

## The Amended Return

- Starting Point
- Original Return
- Transcript
- Account
- Return

## Additional Sources of Information

- _[www.irs.gov](http://www.irs.gov/)_
- IRS Toll free Assistance 1-800-829-1040
- Local IRS Taxpayer Assistance Center
- Taxpayer Advocate 1-877-777-4778

## IRS Disaster Hotline

- 		1-866-562-5227

## Questions