Final Regs on Postponement of Disaster Deadlines Address Sec. 7508A(d) Ambiguities

(Parker Tax Publishing July 2021)

The IRS issued final regulations relating to the new mandatory 60-day postponement of certain time-sensitive tax-related deadlines by reason of a federally declared disaster under Code Sec. 7508A, as amended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted as part of the Further Consolidated Appropriations Act, 2020. The final regulations address what time-sensitive acts are to be postponed and how the mandatory 60-day postponement period is to be calculated. T.D. 9950.

Background

Under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act), when the chief executive of a state, territory, or tribal government determines that the damage from a major disaster exceeds the state's, territory's, or tribal government's resources, the executive may submit a declaration request to the President through a regional office of the Federal Emergency Management Agency (FEMA). The President then determines whether a disaster has caused damage of such severity that it is beyond the combined capabilities of state, territory, or tribal governments and local governments to respond and, if that is the case, makes a major disaster declaration which will specify the dates of an incident (i.e., the incident period) for which the disaster declaration applies. A major disaster declaration provides a wide range of federal assistance programs for individuals and public infrastructure.

Once a declaration is made, FEMA announces whether specific counties, parishes, boroughs, tribal lands, or municipalities within a state that were affected by a major disaster are eligible for federal public and/or individual assistance. FEMA defines an "incident" as any condition which meets the definition of a major disaster or emergency under the Stafford Act and which causes damage or hardship that may result in a Presidential declaration of a major disaster or an emergency. FEMA defines an "incident period" as the time interval during which the disaster-causing incident occurs.

Under Code Sec. 7508A(a), the Secretary of the Treasury has discretionary authority to determine which taxpayers can have acts postponed by reason of being affected by a federally declared disaster and to specify both the time-sensitive acts that are postponed and a period of time that may be disregarded, up to one year, in determining whether such acts were timely performed. The time-sensitive acts that may be postponed under Code Sec. 7508A(a) include acts due to be performed by taxpayers or the government. The term "federally declared disaster" is generally defined in Code Sec. 165(i)(5) as any disaster determined by the President to warrant assistance by the federal government under the Stafford Act.

Section 205 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (the Act), enacted as part of the Further Consolidated Appropriations Act, 2020 (P.L. 116 - 94), amended Code Sec. 7508A relating to the discretionary authority of the Secretary of the Treasury to postpone certain time-sensitive tax deadlines by reason of a federally declared disaster. Specifically, the Act added Code Sec. 7508A(d), which provides that "qualified taxpayers" (generally defined in Code Sec. 7508A(d)(2) as individuals whose principal residence or business is located in a disaster area) are entitled to a mandatory 60-day postponement of certain time-sensitive tax-related deadlines by reason of a federally declared disaster similar to the postponement allowed under Code Sec. 7508A(a).

In January, the IRS issued proposed regulations (REG-115057-20) to interpret and implement Code Secs. 165(i)(5) and 7508A(d). The IRS explained in the preamble to the proposed regulations that Code Sec. 7508A(d) is ambiguous in at least two important respects. First, it is unclear what time-sensitive acts are to be postponed. Second, it is unclear how the mandatory 60-day postponement period is to be calculated when the disaster declaration specified in Code Sec. 7508A(d) does not contain an incident date. The IRS said that the legislative history is insufficient to explain these areas of ambiguity. Last week, the IRS issued T.D. 9950 to finalize the proposed regulations and address the handling of these uncertainties.

Final Regulations

As noted above, Code Sec. 7508A(d) provides a mandatory 60-day period during which qualified taxpayers will receive disaster relief. Except for the rules regarding pensions described in Code Sec. 7508A(d)(4), Code Sec. 7508A(d) does not specify the time-sensitive tax acts to be postponed during the mandatory 60-day postponement period. Code Sec. 7508A(d)(1), however, provides that this mandatory 60-day postponement period "shall be disregarded in the same manner as a period specified under [Code Sec. 7508A(a)]."

According to the IRS, Code Sec. 7508A(a) is not self-executing. Rather, it requires the Secretary of the Treasury to determine whether a taxpayer is affected by a federally declared disaster for purposes of Code Sec. 7508A(a), whether any time-sensitive tax acts are to be postponed for such taxpayers, and the duration of such postponement. The IRS determined that the reference in Code Sec. 7508A(d)(1) to Code Sec. 7508A(a) thus requires a determination by the Secretary of the Treasury of the time-sensitive tax acts, if any, to be postponed.

The final regulations therefore provide that the Secretary of the Treasury's determination under Code Sec. 7508A(a) of the acts subject to postponement due to a federally declared disaster is an essential prerequisite to determining the acts to which the mandatory 60-day postponement period in Code Sec. 7508(d)(1) applies with respect to that federally declared disaster for qualified taxpayers. The final regulations further provide that the phrase "shall be disregarded in the same manner as a period specified under [Code Sec. 7508A(a)]" in Code Sec. 7508A(d)(1) first requires the Secretary of the Treasury's exercise of discretion under Code Sec. 7508A(a) to specify the postponed set of time-sensitive acts for taxpayers (and potentially for the government) during the entirety of the postponement period under both Code Sec. 7508A(a) and (d). Accordingly, if the Secretary of the Treasury determines not to postpone a time-sensitive act under Code Sec. 7508A(a), that act will also not be postponed under Code Sec. 7508A(d). Similarly, if no time-sensitive acts are postponed under Code Sec. 7508A(a), then none will be postponed under Code Sec. 7508A(d).

Regarding the calculation of the mandatory 60-day postponement period, the IRS explained that ambiguities arise when the incident date is specified in a federal disaster declaration as beginning on a certain date but remaining open-ended for an extended period of time. In those cases, the calculation of the mandatory 60-day postponement period could result in a prolonged postponement of specified time-sensitive acts that could span well beyond the one-year discretionary period authorized under Code Sec. 7508A(a). The IRS reasoned that it defies logic for the postponement period under Code Sec. 7508A(a) to be limited to a period of up to one year and there be no limit on the mandatory 60-day postponement period under Code Sec. 7508A(d). The IRS further said that if Code Sec. 7508A(d) were interpreted as requiring such prolonged postponement periods, that interpretation would be contrary to the directive of Code Sec. 7508A(d)(1) that the mandatory 60-day postponement period must "be disregarded in the same manner as a period specified under [Code Sec. 7508A(a)]."

Therefore, the final regulations provide that the phrase "shall be disregarded in the same manner as a period specified under subsection (a)" in Code Sec. 7508A(d)(1) means that the mandatory postponement period cannot exceed the one-year period authorized under Code Sec. 7508A(a). In addition, the final regulations provide that where a declaration establishing a federally declared disaster for purposes of Code Sec. 7508A does not specify an incident date, there is no mandatory period for relief under Code Sec. 7508A(d). If the Treasury Secretary determines to postpone time sensitive tax acts in response to such a declaration, under the discretionary authority in Code Sec. 7508A(a), the only postponement period will be the period determined by the Treasury Secretary under Code Sec. 7508A(a).

The final regulations make one modification to the proposed regulations. In Prop. Reg. Sec. 301.7508A - 1(g)(4)(iii), Example (3), the proposed regulations provided an example concerning a continuing disaster declaration involving wildfires that was later amended by a subsequent FEMA announcement of a latest incident date for the disaster. A practitioner noted that the intended rules, if any, which Example (3) was meant to illustrate were not described in the portions of the proposed regulations which preceded the Examples section. In the preamble to the final regulations, the IRS stated that Example (3) is intended to illustrate the calculation of the mandatory 60-day postponement period in the event of an ongoing disaster with multiple declarations and shifting "latest" incident dates. The IRS therefore modified Example (3) in the final regulations to better illustrate the calculation of the mandatory 60-day postponement period.

For a discussion of disaster relief, see Parker Tax ¶79,300.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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