What to know about this tax-free assistance.
As the number of counties included in federally declared disaster areas grows, the IRS is actively issuing announcements to provide relief to the victims of Hurricane Harvey. Generally, the relief provisions described below are provided to victims residing in or employed in areas designated by FEMA as disaster areas related to Hurricane Harvey. The updated list of these may be found here.
Retirement Plans and Hardship Distributions
IRS Announcement 2017-11, 2017-39, and News Release 2017-141 provide certain allowances may be made to allow for qualified retirement plans, including 403(b) plans, to make loans and/or hardship distributions to participants. Certain rules are loosened, including the definition of an event deemed to be a hardship or the allowance of distributions during employment. The relief does not extend to the 10 percent early distribution penalty, so this penalty would continue to apply as defined under current rules. Employers, with plans, should review this information to determine if a plan has qualifying provisions and, if so, what rules need to be followed to allow for the loans and/or hardship distributions. The relief provisions are intricate in nature and should be followed with care to avoid disqualifying the plan or the distribution.
IRS Notice 2017-48, 2017-39 IRB, and News Release 2017-143 provide guidance for employers desiring to allow employees to participate in a leave-sharing program. A leave-sharing program allows employees to forgo vacation, sick, or other personal leave time in exchange for the value of the leave time being contributed to a qualifying charitable organization. The charitable organization must be involved in Hurricane Harvey relief efforts. The employees are not taxed on the value of the forgone time, and the employers are allowed to treat the payment to the charity as a business expense under IRC Section 162 rather than a charitable donation under IRC Section 170(c).
Extended Filing Deadlines
News Release IR 2017-135 provides a new due date for returns. Various filing deadlines received an automatic extension of time to file as a result of Hurricane Harvey. Relief is provided to persons residing in the designated areas, businesses located in the designated areas, relief workers to the designated areas, and those outside of the area but whose records may be in the designated areas. For Texas counties, the extended due date is January 31, 2018. This applies to federal income tax returns, federal payroll returns, various excise tax returns, estimated tax payments, and exempt organization information returns with due dates (including extended due dates) falling within the extended time period.
The delay allowing for tax payment deposits was only extended until September 7, 2017. Currently, all federal tax deposits are expected to be made in the regular "timely" manner. However, the IRS has authority to abate penalties assessed on late tax deposits with a specific request from the taxpayer. If notices are received assessing penalties for the late payment or late deposit of taxes, a taxpayer should write the IRS to detail the reasons for the late payment and request the abatement of related penalties.
Additional time for filing of payroll reporting forms due on January 31, 2018, such as Forms W-2 and 1099-Misc, has not been granted.
IRC Section 139 Plans: Disaster Relief Assistance
Business and nonprofit organizations may establish disaster relief assistance plans under the provisions of IRC Section 139 to assist victims of federally declared disasters. The plans provide a method of assisting persons affected by the disasters, including an organization's employees. Assistance provided through the plans is tax-free to the recipient. For more information on these plans, see my blog posting earlier this month.
Both taxpayers and employers should be diligent in staying informed regarding relief provisions provided by the IRS. Relief should not be assumed by a taxpayer or employer until it is specifically provided for their location. If Hurricane Irma delivers the devastation possible from a Category 5 hurricane, more disaster relief notices will be issued by the IRS in the days to come.
More information on the various forms of relief provided by the IRS for victims of Hurricane Harvey is available on the IRS website. Find the link to the application for qualified disaster relief and additional instructions here.
Elaine Sommerville, CPA, has worked in public accounting for the past 30 years, primarily focusing on tax-compliance aspects of nonprofit organizations. She has a CPA firm based in Texas, Sommerville & Associates, P.C., and she serves as an editorial advisor for ChurchLawAndTax.com. This post originally appeared on her blog.