On September 29, President Trump signed into law the Disaster Tax Relief and Airport and Airway Extension Act of 2017 (the “Act”). The Act provides temporary tax relief to the victims Hurricanes Harvey, Irma, and Maria (the “Hurricanes”). The Act also provides victims of the Hurricanes with additional access to their retirement accounts and lessens the tax burdens related to these distributions. Below is a summary of the relief provided by the Act.

This relief is in addition to the relief previously provided by the IRS, DOL and PBGC, as discussed in our recent client alert titled “Federal Agencies Provide Benefit Plan Relief to Victims of Hurricanes Harvey and Irma,” released earlier this month.

Relief to Participants of Eligible Retirement Plans

Qualified Hurricane Distributions

In addition to the relaxed withdrawal rules under prior IRS guidance, the Act permits individuals directly affected by the Hurricanes to take a “qualified hurricane distribution” from their retirement plan accounts. A “qualified hurricane distribution” is any distribution from an eligible retirement plan to an individual affected by the Hurricanes, as follows:

  • For an individual whose principal residence on August 23, 2017, is located in the Hurricane Harvey disaster area and who has sustained an economic loss by reason of Hurricane Harvey, a distribution made on or after August 23, 2017, and before January 1, 2019 (see https://www.fema.gov/disaster/4332 for the applicable Harvey disaster area);
  • For an individual whose principal residence on September 4, 2017, is located in the Hurricane Irma disaster area and who has sustained an economic loss by reason of Hurricane Irma, a distribution made on or after September 4, 2017, and before January 1, 2019 (for the applicable Irma disaster areas, see https://www.fema.gov/disaster/4337 for Florida, https://www.fema.gov/disaster/4338 for Georgia, https://www.fema.gov/disaster/4336 for Puerto Rico, and https://www.fema.gov/disaster/4335 for the U.S. Virgin Islands); and
  • For an individual whose principal residence on September 16, 2017, is located in the Hurricane Maria disaster areas and who has sustained an economic loss by reason of Hurricane Maria, a distribution made on or after September 16, 2017, and before January 1, 2019 (see https://www.fema.gov/disaster/4339 for the applicable Maria disaster area).

The total amount of qualified hurricane distributions to an individual from all eligible plans cannot exceed $100,000. When applying this limit, plan sponsors are only responsible for monitoring total distributions from plans that they (or other controlled group members) sponsor.

The following special rules apply to qualified hurricane distributions:

  • Exempt from the 10% excise tax that normally applies when an active participant takes money out of a plan before age 59-1/2.
  • Exempt from the usual 20% mandatory withholding.
  • The distribution can be included in taxable income ratably over the 3-taxable year period that begins with the year in which the distribution is received.
  • Individuals can avoid paying tax on all or a portion of a qualified hurricane distribution if they repay the same amount to the same or other eligible retirement plans (i.e., an IRA, 403(b), 457 plan, etc.) in which they participate at any time within 3 years from the date of the distributions.

Qualified Plan Loan Relief

The Act increases the maximum loan amount for “qualified hurricane distributions” (defined below) from $50,000 to $100,000, and removes the limit that would normally cap a loan at 50% of the vested account balance. This allows a participant to borrow up to the lesser of $100,000 or his or her entire vested account balance.

In addition, “qualified individuals” (defined below) with an outstanding plan loan on or after August 23, 2017 (for Harvey victims), September 4, 2017 (for Irma victims) and September 16, 2017 (for Maria victims), may delay for one year any loan repayments due after the applicable date, and before January 1, 2019. Participants taking advantage of the delay must have their loans reamortized to reflect the one-year postponement, and the one-year postponement period does not impact the term of the loan.

Re-contribution of Prior Withdrawals for Home Purchases

The Act includes a special provision that allows participants who to took a hardship distribution for the purchase or construction a home in any of the designated disaster areas to re-contribute the distribution if the Hurricanes prevented the home from being purchased or constructed. To be eligible for this relief, the withdrawal must have been received after February 28, 2017 and before September 21, 2017, and the re-contribution must be made during the period from August 23, 2017 through February 28, 2018. Re-contributed amounts are treated similar to repayments of qualified hurricane distributions discussed above.

Relaxed Qualifications for Casualty Loss Deductions

The Act has relaxed casualty loss deduction requirements. Under current law, a taxpayer may claim an itemized deduction for any loss sustained during the tax year that is not compensated by insurance, but only to the extent that is at least $100 and exceeds 10% of adjusted gross income (“AGI”). Under the Act, the requirement that personal casualty losses must exceed 10% of AGI is eliminated for individuals affected by the Hurricanes. However, the Act increases the casualty minimum deduction from $100 to $500.

Further, the Act removes the itemized requirement of the casualty loss deduction. Currently, in order to be eligible for a casualty loss deduction one must claim it as an itemized deduction on their federal income tax return. Thus, the casualty loss was unavailable to a taxpayer who did not itemize but rather opted to use the standard deduction. Under the Act, the amount of the casualty loss deduction will be allowed to be added to the standard deduction. Thus, the Act allows taxpayers to deduct casualty losses whether they itemize or take the standard deduction.

Charitable Deduction Limitations Suspended for Qualifying Hurricane Relief Contributions

Under the Act, “qualified contributions” towards hurricane relief are exempt from the limitations under Code Section 170. Currently, Section 170 limits the deduction of charitable contributions based on a percentage of the taxpayer’s AGI, depending on both the type of property contributed and the type of taxpayer. Further, any excess contribution amounts may be carried forward five years. “Qualified contributions” are cash contributions made during the period beginning on August 23, 2017, and ending on December 31, 2017, to specific, listed organizations providing relief to victims of the Hurricanes. For the contribution to be qualified contribution, the taxpayer must also make an election and provide evidence substantiating that the contribution was used for covered relief efforts.

Employment Tax Credits

The Act creates an employee retention credit for eligible employers equal to 40% of up to $6,000 of qualified wages with respect to each eligible employee for the tax year. For purposes of the Act, “eligible employers” are those that conducted an active trade or business in a declared disaster zone on the date of the disaster and, for some period of time following the disaster, were rendered inoperable.

Special Rule on “Earned Income”

The Act allows an individual whose place of abode on August 23, 2017 was located in a federally declared disaster area to substitute their previous year’s earned income for purposes of calculating the earned income tax credit and child tax credit. To be eligible for the election, the earned income of the taxpayer for the tax year in which the disaster occurred must be less than the earned income of the preceding year.

U.S. Territory Tax Relief

Individuals subject to Puerto Rico income taxation may qualify for deadline extensions and other relief from the Puerto Rico Department of Treasury, which is operating from a temporary remote location. In addition, in Notice 2017-56, the IRS relaxed the requirements to be considered a bona fide resident of Puerto Rico or the U.S. Virgin Islands (and therefore exempt from U.S. income tax), for those who temporarily left the territories due to Hurricanes Irma or Maria. Individuals who are residents of Puerto Rico or the U.S. Virgin Islands should consult U.S. territory tax advisors for guidance.

Action Items

Plan sponsors interested in adopting the special distribution rules under the Act have until the end of the first plan year beginning on or after January 1, 2019 (December 31, 2019, for calendar year plans) to amend their plan documents. Plan sponsors who amend (or intend to amend) their plans to provide qualified hurricane distributions should also consider taking the following steps to insure that participants are aware of the opportunities offered by Act:

  • Consider notifying all participants, both active and inactive, about the availability of qualified hurricane distributions.
  • Supplement the plan’s Special Tax Notice to include information regarding the special tax treatment of qualified hurricane distributions.
  • Send participants a Summary of Material Modifications to the plan’s Summary Plan Description (“SPD”), or restate the SPD.

The IRS is likely to issue additional guidance on these topics in the coming weeks. In the meantime, if you have any questions regarding qualified hurricane distributions or any of the additional tax relief provided under the Act, or would like assistance amending your plan, please contact your Jones Walker relationship attorney or one of the attorneys listed below.

Ricardo Carlo, Katelyn Gunn and Joseph Landry are associates in Jones Walker’s Tax and Estates practice group. Ricardo can be reached at rcarlo@joneswalker.com or (504) 582-8409, Katelyn can be reached at kgunn@joneswalker.com or (504) 582-8205, and Joe can be reached at jlandry@joneswalker.com or (504) 582-8428.

On August 25, 2017, and September 10, 2017, President Trump declared major disasters in Texas and Florida due to Hurricanes Harvey and Irma (the “Hurricanes”). Following the declarations, the Internal Revenue Service (“IRS”), the Department of Labor (“DOL”) and the Pension Benefit Guaranty Corporation (“PBGC”) issued relief for affected individuals and entities. The IRS is postponing certain tax filings and payment deadlines for taxpayers who reside or work in the disaster area. The relief also provides qualifying individuals with expanded access to their retirement plan assets to alleviate hardships caused by the Hurricanes. Additional IRS guidance allows donation of employer-paid leave to charitable organizations aiding victims of the Hurricanes.

The DOL is providing additional relief to employers and plan fiduciaries, in the form of deadline leniency and relaxation of fiduciary requirements for benefit plans that have compliance lapses resulting from the Hurricanes. Finally, the PBGC is waiving certain penalties and extending certain filing deadlines. Below is a summary of the relief provided by the IRS, DOL, and PBGC. Additional relief is sure to follow for victims of Hurricane Maria in Puerto Rico and the U.S. Virgin Islands.
Continue Reading Federal Agencies Provide Benefit Plan Relief to Victims of Hurricanes Harvey and Irma

In response to the impact of Hurricanes Harvey and Irma, certain counties in Texas and Florida have been declared as major disaster areas. [For a complete list of declared counties and information on hurricane related federal tax relief see IRS Provides Tax Filing and Payment Relief to Hurricane Victims.]  As a result, numerous states have enacted delayed filing and payment periods for individuals and businesses located in these major disaster areas.  In order to help track these developments, the Jones Walker team has compiled and summarized the provided relief of participating states.  Our team will continue to monitor for further federal and state tax related disaster relief announcements and update this post accordingly.

Alabama

  • Alabama Department of Revenue Press Releases: August 29, August 31, September 12, 2017
  • Alabama taxpayers residing in Texas or Florida counties designated as disaster areas by the federal government have until Jan. 31, 2018, to file tax returns due on or after Sept. 1 (Sept. 15 for Hurricane Irma victims), 2017, and before Jan. 31, 2018.
  • Penalty relief will be provided during the extension period.
  • Taxpayers seeking this tax relief should write “Texas Flood 2017” or “Irma Relief – 2017” in red ink on any state paper return/report which relies on this filing extension relief.
  • The relief applies to individual income tax, corporate income tax, pass-through entities, sales and use tax, withholding tax, and business excise tax.
  • IRP/IFTA requirements for vehicles are temporarily suspended for vehicles engaged in disaster relief efforts.

Arkansas

California

  • CDTFA News Release NR 9-17 (September 1, 2017)
  • Business owners and tax and fee payers affected by Hurricane Harvey may request extensions to file their returns, ask for relief from penalties and/or interest for some taxes and fees, and request copies of records lost due to storm damage.
  • Deadlines are extended for filings that were delayed by disruptions affecting the U.S. Postal Service and private mail and freight companies.
  • Businesses located in the Gulf Coast area that have been impacted by Hurricane Harvey, and who, as a result, cannot meet their filing and payment deadlines, may be eligible for relief.

Continue Reading State Tax Relief for Hurricane Victims

As a result of the devastation wrought by Hurricanes Harvey and Irma, the following counties have been declared as major disaster areas, all of which are entitled to federal tax filing and payment relief:

In Texas: Aransas, Austin, Bastrop, Bee, Brazoria, Calhoun, Chambers, Colorado, DeWitt, Fayette, Fort Bend, Galveston, Goliad, Gonzales, Hardin, Harris, Jackson, Jasper, Jefferson, Karnes, Kleberg, Lavaca, Lee, Liberty, Matagorda, Montgomery, Newton, Nueces, Orange, Polk, Refugio, Sabine, San Jacinto, San Patricio, Tyler, Victoria, Walker, Waller and Wharton Counties.

In Florida: Broward, Charlotte, Clay, Collier, Duval, Flagler, Hillsborough, Lee, Manatee, Miami-Dade, Monroe, Palm Beach, Pinellas, Putnam, Sarasota and St. Johns Counties.

Taxpayers whose principal residence or a business’ principal place of business was located in one of the counties declared as a major disaster area are entitled to certain federal tax relief for the 2016 tax year. This federal tax relief includes: (a) the suspension of certain deadlines to file tax returns; (b) the suspension of certain deadlines to pay taxes; and (c) the ability to claim casualty losses incurred as a result of Hurricanes Harvey and Irma.

Continue Reading IRS Provides Tax Filing and Payment Relief to Hurricane Victims

On October 3, 2016, under Notice 2016-55, the IRS will announce that employees won’t be taxed when they forgo vacation, sick, or personal leave in exchange for employer contributions of amounts to Section 170(c) charitable organizations providing relief to Louisiana storm victims. Notice 2016-55 will also provide that employers may deduct the amounts contributed as business expenses.

Leave-based donations. Some employers have set up or may be considering setting up programs where employees can donate their vacation, sick, or personal leave in exchange for the employer making cash payments to qualified tax-exempt organizations that provide relief for the victims of the August 2016 Louisiana storms.

Tax treatment. In Notice 2016-55, the IRS will announce that it will not assert that cash payments an employer makes to Section 170(c) organizations in exchange for vacation, sick, or personal leave that its employees elect to forgo, constitute gross income or wages of the employees, if the payments are:

  1. Made to the Section 170(c) organizations for the relief of victims of the Louisiana storms; and
  2. Paid to the Section 170(c) organizations before January 1, 2018. Nor will giving employees the choice to participate cause employees to be considered in constructive receipt of income.

It should be noted that employees who participate in a leave-sharing donation program won’t be allowed to claim a charitable contribution deduction for the value of forgone leave excluded from compensation and wages.

As for employers, the IRS has provided that it won’t assert that payments made under a leave-sharing donation program are deductible as charitable contributions under Section 170, rather than as business expenses under Section 162.

Finally, it should be noted that a written disaster leave-sharing plan is required in order to take advantage of the above-referenced IRS leave-sharing pronouncements. Specifically, a list of enumerated requirements must be met in order to be subject to the above-enumerated IRS leave-sharing program.

On August 14, 2016, President Obama declared several parishes in southern Louisiana major disaster areas because of the severe storms and flooding that occurred. These parishes included Acadia, Ascension, Avoyelles, East Baton Rouge, East Feliciana, Evangeline, Iberia, Iberville, Jefferson Davis, Lafayette, Livingston, Pointe Coupee, St. Helena, St. James, St. Landry, St. Martin, St. Tammany, Tangipahoa, Vermilion, Washington, West Baton Rouge, and West Feliciana.

If your principal residence is located in one of these parishes or your business’ principal place of business is located in one of these parishes, the designation of these parishes as a federally declared disaster area provides you with certain federal tax relief. This federal tax relief includes not only the suspension of certain deadlines to file tax returns or pay taxes, but also the ability to claim casualty losses incurred in the flooding on 2015 tax returns. Continue Reading Federal Tax Return Filing and Payment Relief

As a result of the flooding throughout Louisiana, Governor John Bel Edwards issued Executive Order JBE 2016-053 to suspend deadlines in legal, administrative and regulatory proceedings.  The suspension is retroactive from Friday, August 12, 2016 and continues through Friday, September 9, 2016, unless amended, modified, terminated or rescinded by the Governor.

The Louisiana Department of Revenue issued Revenue Information Bulletin 16-046 to confirm that the suspension applies to all tax assessments issued by the Secretary of the Department. The delays that are suspended include the prescriptive period for a taxpayer to file a petition for the redetermination of an assessment with the Board of Tax Appeals, as well as all time delays for appeals in Louisiana courts in matters filed by taxpayers and the Department.