IRS responds to natural disasters.

• Author: Ervin, Rosemary

The IRS reacted quickly to the devastation caused in the aftermath of Hurricanes Katrina and Rita. Even as the House and Senate worked on the Hurricane Katrina Tax Relief Act of 2005 (S 1696; H 3786) and enacted the Katrina Emergency Tax Relief Act of 2005 (KETRA) (P.L. 109-73), various changes had already been announced; see, e.g., IR News Releases 2005-84, 2005-91 and 2005-96. These issues include estimated taxes and corporate, individual, employment and excise tax return extensions. Additionally, benefit plans and Consolidated Omnibus Budget Reconciliation Act of 1985 continuation coverage deadlines were extended; see Notice 2005-60. Hardship withdrawals from retirement plans were addressed in Ann. 2005-70. The IRS has assured individuals, businesses and tax advisers that it is working aggressively to monitor filings and resolve other potential tax administration issues as they are identified.

Extension of Filing Deadlines

IR-2005-112 describes the additional time provided by KETRA for tax filings by Katrina victims; IR-2005110 explains the relief for Rita victims. Taxpayers now have until Feb. 28, 2006 to file returns and pay taxes due, if the original due date was after Sept. 22, 2005. Compliance activities in affected areas are also suspended until that date. Importantly, taxpayers need to (1) identify themselves as being affected by one of these hurricanes and (2) live in one of the affected areas, to receive tax relief. The means of obtaining relief may differ for taxpayers affected by the storms, but living in other locations. The definition of "affected" differs for the two hurricanes.

Workers involved in the relief effort also have until Feb. 28, 2006 to file any returns and pay taxes due. Essentially, they are entitled to the same extensions that apply to individuals and businesses located in the disaster areas. Under Regs. Sec. 301.7508A-1(d)(1)(iii),relief workers affiliated with a recognized government or philanthropic organization, who are assisting in a disaster area are included in the class of affected taxpayers entitled to filing relief. They should mark on appropriate tax filings "Hurricane Katrina" or "Hurricane Rita" in red ink. The IRS will abate interest and any late filing, late payment or failure-to-deposit penalty that would otherwise apply.

Leave-Sharing Programs

Notice 2005-68 outlined leave-based donation programs. Employees will not be taxed if they forgo vacation, sick or personal leave in exchange for...