News & Insights

Recent “atmospheric river” storms have deluged California with torrential rains. Due to the ensuing floods and landslides, the Internal Revenue Service (IRS) recently granted disaster relief to storm victims in many counties in California — resulting in extended due dates for both tax returns as well as extensions for Section 1031 exchanges.

The relief extends tax filing and payment deadlines after Jan. 8, 2023, which means that individual tax returns and payments otherwise due on April 18 will now be due May 15. This extension will also apply to quarterly payroll and excise taxes due on Jan. 31 and April 30. Penalties on payroll and excise taxes deposits on or after Jan. 8 and before Jan. 23 will be abated as long as the deposits are made by Jan. 23.

In addition, under Revenue Procedure 2018-58, the four-day and 180-day time periods under Section 1031 will be extended if the relinquished property (or replacement property in a reverse exchange) is sold on or after January 8. The 45-day identification period and 180-day exchange period will be extended up to 120 days or until May 15 — whichever is later. However, the postponement will not extend beyond the due date (including extensions) of the taxpayer’s return.

Available to any area designated by the Federal Emergency Management Agency (FEMA), the relief is available for individuals businesses and households that reside in or have a business in Alameda, Colusa, Contra Costa, El Dorado, Fresno, Glenn, Humboldt, Kings, Lake, Los Angeles, Madera, Marin, Mariposa, Mendocino, Merced, Mono, Monterey, Napa, Orange, Placer, Riverside, Sacramento, San Benito, San Bernardino, San Diego, San Francisco, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Solano, Sonoma, Stanislaus, Sutter, Tehama, Tulare, Ventura, Yolo, and Yuba Counties.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Therefore, taxpayers do not need to contact the agency to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

In addition, the IRS has said it will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.

It is not uncommon for the IRS to grant disaster relief — other situations which have resulted in tax relief for victims of natural disasters include the California wildfires, multiple hurricanes and the Alaska storms. Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2023 return normally filed next year), or the return for the prior year (2022, normally filed this tax season). The taxpayer must write the FEMA declaration number – 3691-EM – on any return claiming a loss.

Like the abundant rains in our drought-stricken state, this relief is welcomed news to many.

Phil Jelsma is a partner and chair of the tax practice team at Crosbie Gliner Schiffman Southard & Swanson LLP (CGS3). The full article was published in The Daily Transcript. (Subscriber only).