Tax Planning for Hurricane Relief: The IRS, Harvey, Irma, & Maria

The Wolfe Law Group is pleased to announce the publication of Attorney Gary Wolfe’s 20th book, Tax Planning for Hurricane Relief: The IRS, Harvey, Irma, & Maria. The downloadable e-book is currently available on Amazon.

In 2017, millions of Americans in Texas, Florida and adjacent states as well as U.S. citizens in Puerto Rico have been traumatized by Hurricanes Harvey, Irma, and Maria. Property damages is in the billions of dollars. Hundreds of thousand of homes have been damaged or destroyed, and many Americans are sick, scared, carless, homeless and without resources.

As of 9/23/17 five different US states and territories have been declared Presidential Federal Disaster Areas (Master Disaster):

1. Texas (8/25/17) Hurricane Harvey
2. Florida (9/10/17) Hurricane Irma
3. Georgia (9/15/17) Hurricane Irma
4. Puerto Rico (9/10/17) Hurricane Irma; (9/17/17) Maria
5. US Virgin Islands (9/7/17) Hurricane Irma; (9/20/17) Maria

The quickest most effective way to help all Americans faced with casualty losses from the multiple 2017 hurricanes (Harvey et al) is to expedite federal income tax refunds as provided under IRC Sec. 165, in federal disaster relief proclaimed areas.

The IRS issues nearly $400B in federal income tax refunds annually with a national computerized database that may expedite payments of federal income tax refunds to all affected Americans.

For US taxpayers in hurricane ravaged zones, consult your tax advisors about declaring hurricane losses for your 2016 tax returns  (originally due 10/15/17); now due 1/31/18 extended by the US Govt.

There are over 60 million Americans who may be affected by this trio of hurricanes. Conventional advice to seek insurance recovery is not going to help those without flood (or other) insurance (apparently 80% of Texans had no flood insurance).

Puerto Rico Governor Rossello, in response to his hurricane-ravaged island, “(As a result) of the immediate humanitarian crisis Puerto Rico is on the brink of a massive liquidity crisis.”

Puerto Rico’s federal disaster relief approved of nearly $30B is not enough and Gov. Rossello requested an additional $4b in aid or face a continued crisis which triggers massive exits of Puerto Rico residents (over 3m) to US states especially Florida.  A Puerto Rico “diaspora” in which Puerto Rico residents fan out among the United States may create much family hardship, state and local government related costs to both “Manage” and “Direct” new arrivals.

Immediate cultural assimilation issues including work, home site, schools for children as well as democracy issues of registration, voting, political choices, portend an avalanche of immediate issues which may easily overwhelm available federal/state/local resources.

Puerto Ricans may arrive penniless, homeless, hungry and suffering all the miseries that a Category 5 Hurricane can breed.

As Americans, Puerto Ricans deserve all help from their American Brothers and Sisters.

If losses are related to storm, fraud or theft Taxpayer may receive an income tax deduction which may result in immediate federal income tax refunds for the tax year 2016 (2017).

Any excess losses may be carried back to prior 3 tax years (with refunds under amended tax returns) so affected Taxpayers may immediately receive up to 4 years of federal income tax refunds for 2016 (2017) plus 3 prior tax years.

Unused losses may be carried forward for up to 20 years so that Taxpayer income, up to the amount of the unused carryforward loss, may be received tax-free until their loss carryforward is exhausted.

Governmental assistance is hampered by lack of planning (FEMA is already close to out of funds), political infighting, and charities are besieged with requests for help in amounts of money beyond their resources.

In short, the first American environmental disaster in history which has had such punitive and unknown financial consequences to all involved the American citizens and residents, the first responders, federal/state and local governments, insurance companies and charities (both public and private).

There is a silver lining. Americans who experience losses from the Hurricanes or related lawlessness (theft, robbery and frauds) may immediately file their 2016 federal income tax returns (Form 1040) and seek a tax refund (for those taxes paid in 2016) while declaring the casualty (other) losses from 2017 hurricanes (i.e. the hurricane damages may be declared in prior tax year 2016 and tax refunds received for 2016).

If the taxpayer has net operating losses (in excess of their 2016 income) these NOLs (losses) may be carried back for 3 tax years (2013-2015), by filing amended federal income tax returns and seeking tax refunds as appropriate.

If there remains NOLs after carrybacks, these losses may be carried forward for up to 20 tax years so the income received to up to the loss amount is not subject to federal income tax. In future years, the taxpayer (after advice from their tax advisors) may either reduce federal income tax withheld on their salary/wages or make lower estimated tax payments to take advantage of any 20-year NOL carryforwards.

The sooner Americans take advantage of their tax refunds for casualty (theft) losses by filing original or amended federal income tax returns, the sooner “they get paid”.

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