The IRS may respond to a disaster by extending deadlines for taxpayers living in the disaster zone. Make sure to consult the IRS website for possible filing and payment extensions if your client was affected by a disaster. This may also affect the tolling of other deadlines. For example, a taxpayer has 3 years from the filing due date of a return to request a refund, but the filing due date is not always April 15th. This happened due to the COVID-19 pandemic, when the filing due date for the 2020 federal tax return was extended to May 17, 2021.
Those suffering losses from disasters will also want to utilize the casualty loss deduction on their tax return in order to lower their taxable income. If the taxpayer does not have enough income to utilize the entire deduction, it can often be spread over several years. Check the Form 1040 instructions for the year in which the disaster occurred.
Clients may also lose records during a disaster, whether from flooding, tornadoes, fire, or hurricane winds. You may be able to help your client by giving advice on how to reconstruct records, usually with information from third parties such as bank statements, paycheck stubs, mortgage statements, or records procured from customers or vendors. A notarized affidavit may be used if there is no other way to document income or expenses. The attorney should inform the IRS that the original records were lost in a disaster and be prepared to show proof that the taxpayer lived in the disaster zone or was affected by it. Photos of the damage can be used.1
- 1For a detailed discussion of tax issues that may arise in a disaster, see Effectively Representing Your Client Before the IRS ch. 24 (8th ed. 2021).