November 2003

On October 28, 2003, the Internal Revenue Service (IRS) issued News Release 2003126 granting relief from certain tax-related actions which normally would have to be performed prior to December 29, 2003. The relief extends to taxpayers (individuals and businesses) located in the disaster area, or whose tax records are located in the disaster area, or who are relief workers in the disaster area. The disaster area is comprised of the counties of Los Angeles, San Bernardino, San Diego and Ventura. The same relief also will apply to any places that may be later added to the disaster area.

Under the relief provisions, taxpayers may qualify for extensions to file certain returns or make tax payments, including estimated tax payments, that have either an original or extended due date falling within the period October 21 through December 29, 2003 (the “Extension Period”). The Extension Period also applies to certain other time-sensitive actions that are due to be performed during that period.

The relief provisions may be of special interest to taxpayers who are, or are about to be, engaged in a §1031 tax-deferred exchange and whose 45-day identification period, or whose 180-day period for acquisition of replacement property, would have expired during the Extension Period. Because tax-deferred exchanges have been classified as time-sensitive actions, both the 45-day period and the 180 day period expiration dates are extended to December 29, 2003.

The Federal Tax Deposit Penalty Waiver Period for employment and excise tax deposits is October 21 through November 7, 2003.

The Extension Period for returns and other tax payments is October 21 through December 29, 2003.

The Disaster Designation for this area is “CA Wildfires.” Taxpayers are to mark certain relief-related forms with this designation.

For the purposes of this tax relief, affected taxpayers include individuals and businesses located in the disaster area, those whose tax records are located in the disaster area and relief workers. The same relief also will apply to any places added to the disaster area.

The IRS gives affected taxpayers until the last day of the Extension Period to file tax returns or make tax payments, including estimated tax payments, that have either an original or extended due date falling within this period. The IRS will abate interest and any late filing or late payment penalties that would apply during these dates to returns or payments subject to these extensions.

The IRS also gives affected taxpayers until the last day of the Extension Period to perform certain other time-sensitive actions described in Treasury Regulation §301.7508A-1(c)(1) and Rev. Proc. 2002-71, 2002-46 Internal Revenue Bulletin 850, that are due to be performed during this period. This relief includes the filing of Form 5500 series returns in the manner described in section 8 of Rev. Proc. 2002-71.

This extension to file and pay does not apply to information returns, or to employment and excise tax deposits. However, the IRS may abate penalties on such deposits for affected taxpayers due to reasonable cause during the FTD Penalty Waiver Period, provided they make the payment by the last day of that period.

To qualify for this relief, affected taxpayers should put the assigned Disaster Designation in red ink at the top of the return, except for Form 5500, where filers should check Box D in Part 1 and attach a statement following the form’s instructions. Individuals or businesses located in the disaster area – or taxpayers outside the area that were directly affected by this disaster – should contact the IRS if they receive penalties for filing returns or paying taxes late.

Affected taxpayers in a Presidential Disaster Area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements, but they must first subtract $100 for each casualty event and then subtract ten percent of their adjusted gross income from their total casualty losses for the year. For details on figuring a casualty loss deduction, see IRS Publication 547, “Casualties, Disasters and Thefts.”

Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation in red ink at the top of the form so that the IRS can expedite the processing of the refund.

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers who need them to apply for benefits or to file amended returns claiming casualty losses. These taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, “Request for Copy or Transcript of Tax Form,” and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can appropriately consider their cases.

Taxpayers may download forms and publications from the IRS website at www.irs.gov or may order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.

If you have any questions regarding this bulletin, please contact Melvin S. Spears, Esq., author of this publication and head of ECJ’s Taxation Department, at 310.281.6303 or mspears@ecjlaw.com. If one of your colleagues would like to be a part of the ECJ’s Tax Bulletin mailing list, or if you would like to receive copies electronically, please contact Cynthia S. Kaiser at 310.281.6328 or ckaiser@ecjlaw.com.

Tax Bulletin

November 2003

IRS Announces Guidelines For Special California Disaster Tax Relief