Executive Summary
The IRS issued tax relief for California storm victims. Certain filing and payment deadlines starting on or after Jan. 8, 2023, and before May 15, 2023, will be postponed to May 15, 2023. This includes estimated tax payments due Jan. 17, 2023 and April 18, 2023. The guidance also provides for special treatment of gain/loss recognition for taxpayers experiencing casualty loss.
Detailed analysis
Extended due date – filing and payment relief
The IRS issued guidance granting relief to those taxpayers affected by winter storms, flooding and mudslides. Affected taxpayers will now have until May 15, 2023, to file various individual and business tax returns and to make tax payments. The relief includes individuals and households that reside or have a business in any of the following counties in California:
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.
The relief postpones various tax filing and payment deadlines that occur on or after Jan. 8, 2023 and before May 15, 2023. Affected taxpayers will now have until May 15, 2023 to file returns and pay taxes that were originally due during this period. This includes tax year 2022 individual income tax returns otherwise due on April 18, 2023, as well as tax year 2022 business tax returns otherwise due on March 15, 2023 and April 18, 2023. This also means eligible taxpayers will have until May 15, 2023, to make 2022 contributions to their IRAs and health savings accounts. Estimated tax payments normally due Jan. 17, 2023 and April 18, 2023, are likewise postponed to May 15, 2023. Thus, affected taxpayers can skip making fourth-quarter estimated tax payments and include it with the 2022 return they file on or before May 15, 2023. Farmers who choose to forego making estimated tax payments and normally file their returns by March 1, will now have until May 15, 2023 to file their 20022 returns and pay any tax due.
Quarterly payroll and excise tax returns, normally due on Jan. 31 and April 30, 2023, are also postponed to May 15, 2023. In addition, penalties on payroll and excise tax deposits due on or after Jan. 8, 2023 and before Jan. 23, 2023, will be abated as long as the deposits are made by Jan. 23, 2023.
The IRS relief includes other time-sensitive actions described in Reg. section 301.7508A-1(c)(1) and Rev. Proc. 2018-58; filing Form 5500 series returns due on or after Jan. 8, 2023, and before May 15, 2023; and transferors who are not affected taxpayers but who are involved in a section 1031 like-kind exchange pursuant to section 17.02(2) of Rev. Proc. 2018-58. Please see CA-2023-01 and or the IRS tax relief in disaster situations for further details.
Disaster-related casualty losses
In addition to extensions of time to file tax returns and complete certain actions, presidential disaster declarations offer taxpayers special options with respect to gain/loss recognition. Taxpayers who experience a casualty loss in a presidentially-declared disaster area may qualify to recognize losses in the year prior to the year the casualty actually occurred under section 165(i). Taxpayers who realize gains by receiving insurance proceeds in excess of basis may be able to defer gain recognition by reinvesting in qualified property under section 1033. Some of these actions are time sensitive, so taxpayers are encouraged to contact their tax advisor to take advantage of the full range of relief options. Taxpayers that will claim a disaster loss should put the Disaster Designation in bold letters at the top of their return and include the FEMA disaster declaration number 3691-EM on the return.
Please see the applicable news release and refer to Publication 547 and Instructions to Form 4684 Casualties and Thefts for instructions.
Automatic penalty relief
The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. 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 IRS should be contacted to have the penalty abated.
Relief for those impacted outside the disaster area
The IRS will also 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. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.
