Temp Regs Allow More Time to Make Disaster Loss Elections

(Parker Tax Publishing October 2016)

The IRS has issued temporary regulations, effective immediately, that extend the time available for taxpayers to make a Code Sec. 165(i) election to treat a loss from a federally declared disaster as sustained in the year preceding the disaster. The due date is now six months after the due date for filing the return for the disaster year. In addition, the IRS has issued a revenue procedure specifying how taxpayers must make the election. T.D. 9789 (10/14/16); Rev. Proc. 2016-53.

Background

Under Code Sec. 165, a loss from a federally declared disaster is a form of casualty loss. A casualty loss is generally allowed as a deduction only for the tax year in which the loss is sustained (disaster year). Code Sec. 165(i) provides an exception to the general timing rule by allowing a taxpayer to elect to treat an allowable loss as sustained in the tax year immediately prior to the tax year in which the disaster occurred. Taxpayers typically have until the unextended due date of the return for the disaster year to make the Code Sec. 165(i) election.

For purposes of Code Sec. 165(i), a federally declared disaster is any disaster subsequently determined by the President of the United States to warrant assistance by the federal government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. A disaster area is the area that is determined to be eligible for assistance pursuant to the Presidential declaration.

Observation: An up-to-date list of tax relief available for various disasters, including Hurricane Matthew which recently affected much of Florida and North Carolina, is available on the IRS's website.

Temporary Regulations Increase Time Available to Make Section 165(i) Election

The IRS has issued temporary regulations that provide that the due date for making the Code Sec. 165(i) election is six months after the due date for filing the taxpayer's federal income tax return for the disaster year (determined without regard to any extension of time to file). In addition, the temporary regulations extend the period of time for revoking a Code Sec. 165(i) election to 90 days after the due date for making the election.

The temporary regulations are effective immediately.

Procedures for Making a Section 165(i) Election

Contemporaneously with the temporary regulations, the IRS has issued Rev. Proc. 2016-53, which specifies how a taxpayer makes a Code Sec. 165(i) election.

A taxpayer makes a Code Sec. 165(i) election by deducting the disaster loss on either an original federal tax return or an amended federal tax return for the preceding year. A taxpayer must include with the original federal tax return or amended federal tax return, an election statement indicating the taxpayer is making the election.

The election statement must contain the following information:

(1) The name or a description of the disaster and date or dates of the disaster which gave rise to the loss.

(2) The address, including the city, town, county, parish, state, and zip code, where the damaged or destroyed property was located at the time of the disaster.

For an election made on an original federal tax return, a taxpayer must provide the above information on Lines 1 or 19 (as applicable) of Form 4684, Casualties and Thefts. A taxpayer filing an original federal tax return electronically may attach a statement as a PDF document if there is insufficient space on Lines 1 or 19 of the Form 4684.

For an election made on an amended federal tax return, a taxpayer can provide the required information by any reasonable means, including by writing the name or a description of the disaster, the state in which the damaged or destroyed property was located at the time of the disaster, and "Section 165(i) Election" on the top of the Form 4684 and providing the rest of the information required by Rev. Proc. 2016-53 in either the Explanation of Changes section in Form 1040X, Form 1120X, or other appropriate form, or directly on the Form 4684.

Generally, a taxpayer cannot make a Code Sec. 165(i) election for a disaster loss if the loss has already been claimed as a deduction for the disaster year. However, if a taxpayer has claimed a deduction for a disaster loss in the disaster year and the taxpayer instead wants to make a Code Sec. 165(i) election with respect to such loss, the taxpayer must file an amended return to remove the previously deducted loss. The amended return must be filed on or before the date that the taxpayer files the return or amended return for the preceding year that includes the Code Sec. 165(i) election. Similarly, a taxpayer cannot revoke a previously made Code Sec. 165(i) election and deduct the loss in the disaster year unless the taxpayer first files an amended return to remove the loss for the preceding year.

For a discussion of losses due to federally declared disasters, see Parker Tax ¶84,545.

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.

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com

We hope you find our professional tax research articles comprehensive and informative. Parker Tax Pro Library gives you unlimited online access all of our past Biweekly Tax Bulletins, 22 volumes of expert analysis, 250 Client Letters, Bob Jennings Practice Aids, time saving election statements and our comprehensive, fully updated primary source library.

Try Our Easy, Powerful Search Engine

A Professional Tax Research Solution that gives you instant access to 22 volumes of expert analysis and 185,000 authoritative source documents. But having access won’t help if you can’t quickly and easily find the materials that answer your questions. That’s where Parker’s search engine – and it’s uncanny knack for finding the right documents – comes into play

Things that take half a dozen steps in other products take two steps in ours. Search results come up instantly and browsing them is a cinch. So is linking from Parker’s analysis to practice aids and cited primary source documents. Parker’s powerful, user-friendly search engine ensures that you quickly find what you need every time you visit Our Tax Research Library.

Dear Tax Professional,

My name is James Levey, and a few years back I founded a company named Kleinrock Publishing. I started Kleinrock out of frustration with the prohibitively high prices and difficult search engines of BNA, CCH, and RIA tax research products ... kind of reminiscent of the situation practitioners face today.

Now that Kleinrock has disappeared into CCH, prices are soaring again and ease-of-use has fallen by the wayside. The needs of smaller firms and sole practitioners are simply not being met.

To address the problem, I’ve partnered with a group of highly talented tax writers to create Parker Tax Publishing ... a company dedicated to the idea that comprehensive, authoritative tax information service can be both easy-to-use and highly affordable.

Our product, the Parker Tax Pro Library, is breathtaking in its scope. Check out the contents listing to the left to get a sense of all the valuable material you'll have access to when you subscribe.

Or better yet, take a minute to sign yourself up for a free trial, so you can experience first-hand just how easy it is to get results with the Pro Library!

Sincerely,

James Levey

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com