IRS Provides Tax Relief to Victims of Hurricane Irma in U.S. Virgin Islands and the President Declares Florida Major Disaster Area

Synopsis

The President declared the State of Florida and the territory of the U.S. Virgin Islands as major disaster areas. While the IRS announced that victims of Hurricane Irma who reside or have a business in the islands of St. John and/or St. Thomas may qualify for tax relief, no information has been released relating to the tax relief available to residents and businesses located in Florida.  While this tax alert only addresses relief relating to taxpayers located in the U.S. Virgin Islands, taxpayers located in Florida should expect to receive similar assistance.  Once additional information is issued relating to the relief available to Florida residents, we will issue a subsequent alert with the relevant information.

USVI:  Tax Return Due Dates and Taxes Qualifying for Tax Relief

The major disaster area declaration allows, for taxpayers who reside or have a business in the covered disaster area, the IRS to postpone certain deadlines for the payment of taxes and/or the filing of required returns. Certain taxpayers with deadlines falling on or after September 6, 2017 (onset date of the disaster) and before January 31, 2018, are granted additional filing time.  Included in the tax relief are taxpayers who had a valid extension of time to file their 2016 return that was due on October 16, 2017. The relief also applies to quarterly estimated income tax payments originally due on September 15, 2017 and January 16, 2018, and the quarterly payroll and excise tax returns that are typically due on October 31, 2017. It also includes tax-exempt organizations that operate on a calendar-year basis and had an automatic extension until November 15, 2017. Additionally, penalties on payroll and excise tax deposits due on or after September 6, 2017, and before September 21, 2017, will be abated as long as the deposits are made by September 21, 2017.

Tax Relief is Automatic

The IRS automatically applies filing and payment relief to affected taxpayers. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline are located in a covered disaster area, are also entitled to relief and must call the IRS disaster hotline at 866-562-5227 to request tax relief.

Grant of Relief

The IRS relief allows affected taxpayers until January 31, 2018 to file most tax returns (including individual, corporate, and estate and trust income tax returns, partnership returns, S corporation returns, trust returns, estate, gift, and generation-skipping transfer tax returns, annual information returns of tax-exempt organizations, and employment and certain excise tax returns), that have either an original or extended due date occurring on or after September 6, 2017, and before January 31, 2018. These returns will not be subject to penalties for failure to pay estimated tax installments, as long as such payments are paid on or before January 31, 2018.
 
The special tax relief does not apply to information returns in the W-2, 1094, 1095, 1097, 1098, or 1099 series, to Forms 1042-S, 3921, 3922, 8025, or 8027, or to employment and excise tax deposits. 

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either the year in which the event occurred, or the prior year.  Accordingly, taxpayers whose tax returns are on extension should consider whether to claim such deduction on their 2016 tax return (or to amend an already filed tax return).
 
A casualty loss can result from the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Such an event includes a flood, hurricane, tornado, fire, earthquake, or volcanic eruption.  If a taxpayer experiences damage to personal, income-producing, or business property, the taxpayer may be able to claim a casualty loss deduction on their return. 
  
Affected taxpayers claiming the disaster loss return should put the Disaster Designation, “U.S. Virgin Islands, Hurricane Irma” at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the customary fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation “U.S. Virgin Islands, Hurricane Irma,” in red ink at the top of Form 4506, Request for Copy of Tax Return and Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

What Does CohnReznick Think?

As noted in our earlier tax alert relating to Hurricane Harvey, any natural disaster – especially those involving loss of life and displacement of families – presents challenges to the survivors. Affording taxpayers affected by such an event flexibility in filing tax returns and paying taxes due is simply the right thing to do. In addition to the federal tax relief noted above, states often provide similar relief to impacted taxpayers as the recovery process continues. Taxpayers who believe they qualify for relief from Hurricane Irma should consult with their tax advisor to ensure they understand how the relief provisions outlined above impact their specific situation.

Contact

For more information, please contact Brian Newman, Partner, at [email protected] or at 959-200-7009, or Corey Rosenthal, Principal, State and Local Tax Services, at [email protected] or at 646-625-5729.