Tax

Federal Extensions and Other IRS Relief

When are Federal tax returns due for taxpayers affected by the WTC disaster?

"Affected taxpayers," other than individuals, whose federal tax returns are originally due (without extensions) on or after September 11, 2001 and on or before November 30, 2001, have been granted a 120-day postponement and a six-month extension (which run consecutively) for filing their income tax returns (such as partnership returns, corporate income tax returns, estate and trust income tax returns and annual returns of tax-exempt organizations).

"Affected taxpayers," other than individuals, who were already on a sixth-month extension to file their federal income tax returns, which extension expires between September 11, 2001, and November 30, 2001, have been granted an additional 120 days to file their returns. Thus, a calendar year corporation that had an extension until September 17, 2001, to file its year 2000 Federal corporation income tax return has an additional 120 days (until January 15, 2002) in which to file its return. In addition, returns of certain "affected taxpayers" other than individuals who are on an extension (other than pursuant to the special rules for "affected taxpayers") that expires on or after December 1, 2002, and on or before January 31, 2002, have until February 15, 2002 to file their returns-this additional relief only applies to "affected taxpayers" who are having difficulty in meeting their federal tax obligations because their records, computers, or other essential supporting services were lost or damaged, or essential personnel were injured or killed, or are missing as a result of the WTC disaster.

"Affected taxpayers" who are individuals and whose 2000 federal individual income tax returns were subject to an extension expiring on or after September 11, 2001 have until February 12, 2002 to file their returns.

"Affected taxpayers" include: individuals whose principal residence or place of employment is in one of the five boroughs of New York City or Arlington County in Virginia (a "disaster area"), business entities whose principal place of business is in a disaster area, victims of the crash of the four airplanes (whether on a plane or the ground) and individuals missing as a result of the WTC disaster, certain relief workers and any individual, estate, trust or business entity whose records necessary to meet a filing or payment deadline are maintained in a disaster area. A spouse of an affected taxpayer is included solely with regard to a joint return with an affected taxpayer.

Is there an extension of the due date for payment of Federal taxes?

There is an extension of the deadline to pay taxes due in connection with partnership returns, corporate income tax returns, estate and trust income tax returns and annual returns of tax-exempt organizations of "affected taxpayers" that were originally due on or after September 11, 2001 and on or before November 30, 2001. The extension runs until the filing of the return related to such taxes (six months plus 120 days).

As to "affected taxpayers" that were already on an extension and who are granted additional time to file as described above, there is no extension of the deadline to pay any tax. The IRS will, however, ignore the period from September 11, 2001 through January 9, 2002 in computing any penalties for failure to pay. Thus, the penalty for failing to pay taxes due will resume accruing after January 9, 2002, if taxes due remain unpaid at that time.

What if a taxpayer misses the deadline for making Federal estimated tax payments?

The due date for federal estimated tax payments by "affected taxpayers" (whether by individuals, corporations, estates or trusts) due on or after September 11, 2001 and before January 15, 2002 has been postponed until January 15, 2002.

What if a taxpayer does not timely make Federal employment or excise tax deposits?

The IRS is not extending the deadline for employment or excise tax deposits. However, the IRS will waive additions to tax for businesses unable to make such deposits otherwise due on or before September 11, 2001 and on or before October 31, 2001 because of the WTC disaster if such payments are made by November 15, 2001. This relief is available only to businesses that are unable to meet their deposit obligations because their (or their service providers') records, computers or other essential services were damaged or essential personnel were injured by the WTC disaster.

Do taxpayers other than "affected taxpayers" qualify for any Federal tax relief?

Taxpayers who are not "affected taxpayers," but who have experienced difficulty meeting their federal tax obligations as a result of disruption in the transportation and delivery of documents by mail or private delivery services caused by the WTC disaster, have until November 15, 2001 to file returns and make payments that would have otherwise been due on or after September 11, 2001, and on or before October 31, 2001.

How does a taxpayer claim the Federal relief concerning return filing and tax payments?

Taxpayers who believe they are entitled to relief should mark "September 11, 2001 Terrorist Attack" in red ink on top of their return or other documents submitted to the IRS.

How does the filing relief affect partners, S corporation shareholders, and beneficiaries of trusts and estates?

The IRS has not postponed the due date for the income tax returns of partners, S corporation shareholders, or estate or trust beneficiaries solely because they are the owners or beneficiaries of entities that are "affected taxpayers."

According to IRS guidance, partners, shareholders and beneficiaries of trusts and estates may request extensions of time to file their income tax returns. Taxpayers should consult with their tax advisors in connection with the filing of an extension request. According to the IRS guidance, if the Schedule K-1 is not received by the extended due date, the partner, shareholder, or beneficiary should prepare and file the income tax return on a timely basis by making a reasonable estimate in good faith of items of income, gain, loss deduction, and credit attributable to the taxpayer's interest in the entity. Later, when the Schedule K-1 is received, the taxpayer should prepare an amended return reflecting the items reported on the Schedule K-1. If the taxpayer's original return underestimated the tax due and a late payment penalty is assessed, the taxpayer should request an abatement of the penalty for reasonable cause. If the original return was prepared in good faith based on reasonable estimates of the tax items attributable to the entity, the IRS will waive or abate penalties for late payment.

Has the IRS proposed or announced any other relief for taxpayers?

The IRS has indicated that for six months it will suspend many enforcement activities - such as levies, seizures and summonses - for "affected taxpayers."

The deadlines for making certain tax elections and performing certain tax sensitive acts have been postponed 120 days if the deadline for such election or act would otherwise have expired on or after September 11, 2001 and on or before November 30, 2001. Taxpayers should consult with their tax advisors for information on which elections and acts are covered by the extended deadlines.

"Affected taxpayers" whose last day to file a petition in the Tax Court was on or after September 11, 2001 and on or before December 31, 2001 have been granted certain postponements of the time in which to file their petitions. Any taxpayer who wishes to file a petition in the Tax Court should consult a tax advisor regarding the availability of a postponement of the time in which to file such petition.

The IRS has announced that it intends to issue regulations permitting certain taxpayers to modify the depreciation convention applied to business property placed in service during a taxpayer's tax year that includes September 11, 2001. Consult your tax advisor for further information concerning this election, or any further developments with respect to tax relief, or call the IRS Hotline at (866) 562-5227. Further updates may also be obtained from the IRS website at www.irs.gov/relief/index.html.

Have any extensions been granted for acts to be performed by the IRS?

Taxpayers should be aware that the IRS has been granted additional time to perform certain acts with respect to taxpayers whose records were maintained by the IRS in New York City and which were destroyed or lost or are otherwise inaccessible as a result of the WTC disaster. The IRS has indicated that it intends to notify taxpayers affected by the postponed IRS deadlines as soon as practicable. The IRS has also been granted a postponement related to filing notices of deficiency in respect of "affected taxpayers" who have received postponements in which to file petitions in the Tax Court.

New York State Tax Extensions

When are New York State tax returns due for taxpayers affected by the WTC disaster?

All New York State tax returns of "afflicted" taxpayers due between September 11, 2001 and December 10, 2001 (whether or not as a result of an extension), may be filed on or before December 10, 2001 with no late filing, late payment or underpayment penalties or interest imposed where taxpayers cannot meet those deadlines as a result of the September 11 attacks.

Fiscal-year taxpayers whose due date for filing a return (including extensions) or making an estimated tax payment falls from September 11, 2001 through December 10, 2001, may file and pay any tax due on or before December 10, 2001 without late filing, late payment or underpayment penalties or interest if they cannot meet these deadlines as a result of the September 11 attacks. If they cannot file the return by December 10, 2001, they should file for an extension (on Forms IT-370 or IT-370-PF, or if an extension was already granted, Form IT-372 or IT-372-PF) along with payment of the estimated amount of tax due. All extensions filed on or before December 10, 2001, will have the same effective date as if they had been filed on the original due date for that extension.

When are New York State payments due?

All New York State payments due between September 11, 2001, and December 10, 2001 that are made by December 10, 2001 will be deemed to have been received on the original due date.

Who qualifies for New York State relief?

The relief is granted to those businesses or individuals "afflicted" by these tragic circumstances and who, as a result, cannot meet tax filing and payment deadlines. New York State has issued a non-exclusive list of those who qualify, including:

all workers assisting in the relief efforts at the World Trade Center, the Pentagon and in western Pennsylvania;
any taxpayer whose records needed for filing are unavailable due to the WTC disaster;
taxpayers who have difficulty meeting their deadlines due to disruptions in transportation, mail or delivery services or communications services due to the WTC disaster; and
taxpayers whose tax practitioners were unable to complete work to meet tax deadlines in a timely manner due to the WTC disaster.

The perpetrators of the attacks and anyone aiding in the attacks will not qualify for the relief provided by the extended deadlines.

How does a taxpayer qualify for New York State relief?

Businesses or individuals who were directly afflicted by these tragic incidences should mark WTC on the top center of the front page of any late filed submission, and should include a brief explanation of the circumstances that affected their ability to meet tax deadlines.

What if the disaster relief due date for the corresponding Federal tax return is later than the New York return due date?

For affected businesses or individuals, no late filing or late payment penalties will be imposed for the period between September 11, 2001 and the due date for filing the corresponding Federal tax return under the IRS disaster provisions if the Federal due date is later than the relief due date for the New York State tax return. This additional penalty relief is available for purposes of the NYS personal income tax and corporate franchisee tax. Businesses and individuals not eligible for the interest and penalty relief discussed above, but who are eligible for this additional penalty relief, should mark WTC - Federal Extension on the top center of the front page of any late filed submission.

Interest will accrue on any unpaid balance from December 10, 2001 until the date of payment.

New York City Tax Relief

What relief is there from the NYC General Corporation Tax, Unincorporated Business Tax or Banking Corporation Tax?

All returns or payments due September 17, October 15 or November 15, 2001 for taxpayers who cannot meet these deadlines due to the disaster may be filed on or before December 17, 2001, and will be considered timely, and no late filing or late payment penalties will be imposed. Taxpayers who cannot meet the extended due date may request an additional extension (Forms NYC-6, NYC-6.1, NYC-62, NYC-64, NYC-6B or NYC-6.1B). Taxpayers who have previously received extensions, and are precluded by law from receiving an additional extension, will be deemed to have reasonable cause for the late filing.

Interest will continue to accrue at the appropriate underpayment rate and must be paid on all tax payments received after the original due date, calculated from the original due date to the date of payment.

What relief is there from the NYC Commercial Rent or Occupancy Tax?

Taxpayers who are unable to file the first quarterly return, due September 20, 2001, may file and pay on or before December 20, 2001, the due date of the second quarterly return. The two quarterly returns must be filed on separate forms.

Interest must be paid for any payment after the original due date, to be calculated from the original due date.

What relief is there from the NYC Cigarette Tax, Utility Tax and Hotel Room Occupancy Tax?

Taxpayers unable to timely file monthly or quarterly Cigarette Tax returns due in September, October or November, 2001 may file and pay on or before December 17, 2001, without the imposition of late filing or late payment penalties.

Taxpayers whose quarterly Hotel Room Occupancy Tax returns and payments are due in September, 2001 and are unable to meet that due date, may file on or before December 20, 2001, the due date of the fourth quarterly return, without the imposition of late filing or late payment penalties. The two returns must be filed on separate forms.

Taxpayers unable to timely file monthly Utility Tax returns due in September, October or November, 2001 may file and pay on or before December 26, 2001 without the imposition of late filing or late payment penalties.

Interest at the appropriate underpayment rate must be paid on all tax payments received after the original due date, calculated from the original due date to the date of payment.

Who qualifies for tax relief for NYC purposes?

The relief is granted to those "unable" or who "cannot" make timely filings or payments "due to the disaster." No further guidance has been given.

What should a taxpayer do to claim relief from NYC?

Returns, extensions, declarations of estimated tax filed under these relief provisions should be marked "World Trade Center" on the top center of the first page. Taxpayers must include an explanation of how the disaster adversely affected their ability to meet their filing and payment obligation.

Claiming Losses on Tax Returns and Reporting Insurance - Federal Income Tax

Set forth below are some general tax law principles relating to claiming losses on tax returns and the taxation of insurance proceeds. In practice, these rules can be complex, and their application depends upon the particular circumstances of each taxpayer. Taxpayers are strongly advised to consult with their tax advisors when filing tax returns for years in which losses are reflected or insurance proceeds are received.

Can a taxpayer claim a casualty loss for damage to property sustained as a result of the WTC disaster?

With respect to losses incurred in a trade or business or other activity entered into for profit, a loss may be permitted in the amount of the lesser of (1) the excess of the fair market value of the property prior to the disaster over the fair market value, if any, following it, and (2) the taxpayer's adjusted tax basis in the property, provided that, if the property is totally destroyed and the fair market value of the property before the disaster was less than the adjusted tax basis, the amount of the loss is equal to such adjusted tax basis. Losses sustained by individuals that are not connected with a trade or business or other profit-motivating activities (and losses sustained in connection with the performance of services) may also be allowed, but such losses are subject to additional limitations. Taxpayers should consult their tax advisors as to when a loss is allowable and the appropriate determination of the loss.

What impact do insurance recoveries or other reimbursements have on the amount of any loss that may be claimed?

Generally, the amount of any loss is reduced by insurance proceeds or other reimbursements received with respect thereto. Moreover, a taxpayer may not claim a loss or portion of a loss if the taxpayer has a claim for reimbursement with respect to the loss for which, based on an inquiry into the relevant facts and circumstances, there is a reasonable prospect of recovery.

Are there any special provisions as to when the loss may be claimed?

Because the WTC disaster has been determined by the President to have created an area warranting assistance under a federal disaster relief statute, an election may be available to claim the loss in the taxable year preceding the taxable year in which the disaster occurred.

Are records necessary to prove loss deductions?

It is important for taxpayers to have records that prove the amount of loss deductions taken. Taxpayers who do not have the actual records to support their deductions can use other satisfactory evidence that is sufficient to establish the deduction claimed. The decrease in fair market value of property is generally determined by appraisal.

If a taxpayer receives insurance proceeds, are such proceeds taxable to the taxpayer?

Whether insurance proceeds are taxable depends on the type of insurance held by the taxpayer. Insurance may compensate a taxpayer for lost profits and similar items, and such insurance is generally included in a taxpayer's gross income. As to insurance relating to damage to property, a taxpayer may be able to offset any income from the proceeds by the adjusted basis of the property for which the insurance is compensation, with the excess treated as income. An election may be available to defer recognition of such gain if the taxpayer uses the proceeds to purchase property similar or related in service or use within a prescribed period.

When a taxpayer receives insurance proceeds for a loss in respect of which the taxpayer has already claimed a casualty loss deduction, the amount of such insurance proceeds generally must be included in gross income in the year of receipt. Additional rules apply if the amount received exceeds the amount of the claimed deduction.

Other kinds of insurance, such as life insurance, are subject to special rules.

Because of the complexity of the rules in this area, taxpayers are strongly advised to consult with their tax advisors when filing tax returns for periods in which the receipt of insurance proceeds or gain recognition deferral is reflected.

How can taxpayers get additional information on claiming losses and reporting insurance payments?

In addition to consulting with a professional tax advisor or with the IRS, taxpayers can obtain further information by reading IRS Publication 547 "Casualties, Disasters and Thefts (Business and Nonbusiness)."

How can I contact the government if I have questions?

Federal: If your business was affected by the WTC disaster you may call the IRS at (866) 562-5227, Monday through Friday, 7am to 10pm (8am to 9:30pm for Spanish) or send questions by email to the IRS about extensions and other tax relief to corp.disaster.relief@irs.gov.

New York State: For NYS business tax information, call (800) 972-1233 or (800) 634-2110 (TTY) Monday through Friday, 8:30am to 4:25pm, or visit them online at www.tax.state.ny.us.