In response to the devastating floods in South Carolina, the Internal Revenue Service outlined a tax relief initiative designed to aid residents and businesses impacted by the flooding with filing deadline extensions, grants of relief for certain late payments and claiming of casualty losses. The IRS action follows the recent disaster declaration in numerous South Carolina counties by the Federal Emergency Management Agency.
Under the initiative detailed by the IRS issued on October 6, 2015 and updated multiple times thereafter for additional counties, individuals and businesses located in Bamberg, Berkeley, Calhoun, Charleston, Clarendon, Colleton, Darlington, Dorchester, Florence, Georgetown, Greenwood, Horry, Kershaw, Lee, Lexington, Orangeburg, Richland, Sumter and Williamsburg counties in South Carolina may qualify for tax relief. The disaster declaration for these counties permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. This list of eligible counties may be expanded. Please continue to check the link below for updates on the counties covered.
Filing Deadlines Extended
The IRS, recognizing the challenges faced by residents of these flood-ravaged areas, has extended certain deadlines falling on or after October 1, 2015, through February 16, 2016. Those deadlines have now been set for February 16, 2016, and this additional grace period is inclusive of the October 15 deadline for those who received an extension to file their 2014 returns.
Grant of Relief
This IRS action also covers the failure-to-deposit penalties for employment and excise tax deposits which were due on or after October 1, 2015. The penalties for these payments have been temporarily waved, provided that deposits are made by October 16, 2015.
The IRS advises that if a taxpayer in any of the disaster-impacted South Carolina counties should receive a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. According to the IRS, penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date that falls within the postponement period.
Taxpayers in the impacted areas may claim disaster-related casualty losses on their federal tax return for either this year or last year. The election should be made before the original due date of the tax return for the loss year. For individuals who itemize, the loss can be claimed on an original or amended return to the extent the loss exceeds 10% of their adjusted gross income and consideration should be given to the taxpayer’s marginal tax rate for each year to determine when to report the loss. For businesses, in most cases, the loss is limited to the entity’s basis in the property or the decrease in the fair market value, whichever is less and must take into account insurance reimbursements.
The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. However, it is important to note that affected taxpayers who reside or own a business located outside the covered disaster area must call the IRS disaster hotline at 866-562-5227 to request this tax relief. For more details on the IRS program put into place for South Carolina, please click here.
How We Can Help
If you have questions about how this tax relief may affect you, contact your Elliott Davis Decosimo advisor for assistance. To read more on South Carolina guidance on the tax relief for flood victims, click here.