Disaster relief extensions apply only to original post-casualty dates.

• Author: Schreiber, Gerard H., Jr.

When natural disasters strike, they often affect thousands or millions of taxpayers, and their effects can last for a long time. Many people, for example, are still dealing with the aftermath of Hurricanes Isaac and Sandy, which hit the United States in August and October, respectively. To provide some relief in these situations, the IRS often postpones various filing, deposit, and, sometimes, payment deadlines for affected taxpayers.

The authority for this postponement is in Sec. 7508A and Regs. Sec. 301.7508A1. The regulations provide sufficient examples for practitioners to use in determining client filing dates and payment obligations as a consequence of the postponement.

The three areas of most concern to practitioners are the filing date for extended returns; the filing date for returns with a due date during the postponement period; and whether penalties and interest apply for the postponement period to extended returns that had a balance due at the date the extension was filed (the original due date).

For Sec. 7508A postponement periods, not all penalties and interest are suspended. Notably, interest and penalties will continue to accrue if payment was due prior to the date of the disaster. So, a taxpayer affected by Hurricane Isaac, on extension to file 2011 returns through Oct. 15, 2012, may take as long as until Jan. 11, 2013, to file without incurring a failure-to-file penalty under Sec. 6651(a)(1). However, absent the rarely granted extension of time to pay under Sec. 6161, underpayment or nonpayment penalties and interest continue from the April 17, 2012, extension filing date through the date of payment, uninterrupted by the disaster, because the payment due date preceded the postponement period. The taxpayer may assert reasonable cause under Sec. 6651(a)(2), but the results are uncertain, and the appeal may be costly.

Practitioners who have clients affected by Sec. 7508A postponement periods should be familiar with the Code sections and regulations and have them handy for reference. Practitioners may wish to caution or prepare their clients for otherwise unexpected penalties and interest bills that those clients may believe were not applicable due to the postponement period. Any IRS notices and computations received should be read carefully to be sure the applicable relief has been taken into consideration. If failure-to-file, failure-to-pay, or failure-to-deposit penalties were levied, a practitioner may apply for a...