An official from the American Institute of CPAs testified at a Senate hearing Tuesday on the need for Congress to pass legislation giving victims of natural disasters automatic access to permanent and timely tax relief.
AICPA Tax Executive Committee chair Troy K. Lewis told the Senate Finance Subcommittee on Taxation and IRS Oversight that the current system provides inconsistent tax relief. “In the past, Congress has considered each disaster as an isolated event and restricted any special tax relief to the individual event,” he pointed out.
As a result, Lewis noted, similarly situated taxpayers receive different tax benefits for comparable losses. “It is important that all victims—regardless of the state in which they reside or the type of disaster they endure—receive comparable relief,” he said.
The tax relief should be triggered when a federal disaster declaration is issued, Lewis suggested. “By having a trigger mechanism in place, Congress allows the IRS to promptly issue notice of the available relief to the public and enables the IRS to program its systems appropriately,” he said.
“Under the current system, individuals and small business owners do not know what tax relief they will receive until Congress enacts legislation, sometimes months or even years after the event,” Lewis added. “The uncertainty surrounding such delayed relief impedes recovery.”
Lewis outlined 10 specific recommendations that the AICPA believes should be activated on a permanent basis when a taxpayer resides in, or has a principal place of business located in, a Federal Emergency Management Agency disaster declaration area for which individual disaster assistance is available.
Among the recommendations are to waive individual casualty loss minimums, waive the penalty for early retirement withdrawal, exclude non-business discharge of indebtedness from taxable income, extend the net operating loss carryback to five years and increase the property replacement period to five years.
“A set of standard disaster tax relief provisions will minimize the administrative burdens on the victims as well as the IRS,” said Lewis.
Chattanooga mayor Andy Berke also testified at the hearing, describing his city’s experience when over 20 tornadoes hit Tennessee in March 2012.
“The widespread destruction could be witnessed in over 344 distinct locations throughout our state,” he said. “In our area alone, we saw over $16.8 million of property damage and a relief effort that required 997 volunteers who gave a total of 6,617 hours.”
Berke recalled that dozens of families lost their homes, thousands of residents lost power, and 82 businesses were completely destroyed in his area.
“There is one thing we all know very clearly,” he added. “When a community suffers this kind of disaster, the speed at which aid is administered directly correlates with the speed in which a community can heal. And I have no doubt by speeding up the time in which tax relief is available to families and businesses, we will see our communities recover quicker.”
