Natural Disasters and Tax Consequences: Individuals and Businesses Take Note

It seems that natural disasters are occurring more and more frequently. Both the East Coast and West Coast have recently been devastated by storms, and some central states have been hit by tornadoes. The IRS has already noted 14 federal disasters in 2023—including tornadoes, mudslides, winter storms, severe rains, and flooding. When these events happen, they have tax consequences to individuals and businesses.

Under the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (P.L. 116-94), there is an automatic 60-day extension for filing tax returns for those affected by a disaster, including individuals who reside in a disaster area, those injured or killed by the disaster, businesses that have a principal place of business in a disaster area, relief workers who provide assistance in a disaster area, or any taxpayer whose tax records necessary to meet a tax deadline are located in a disaster area (Code Sec. 7508A). Regulations clarify that the 60-day period begins at the start of the incident period (e.g., when the storm begins) and ends 60 days after the last day of the incident period (e.g., when the storm ends) (T.D. 9950, 6/11/21).

The IRS has the authority to provide additional time—up to a total of one year beyond the usual deadline—for filing income, employment, and excise tax returns, as well as for various retirement plan actions, such as taking required minimum distributions, completing rollovers, or fixing certain defects in qualified retirement plans. For example, with respect to the Arkansas tornado on March 31, 2023, the IRS extended the April 18, 2023, tax-filing deadline to July 31, 2023 (IR-2023-68); this is more than 60 days from the incident. For the winter storm and snowstorm that hit  New York on March 2 of this year, the filing deadline was extended to May 15 for those in Erie, Genesee, Niagara, St. Lawrence, and Suffolk counties (IR-2023-58). The extension also applies to making 2022 contributions to individual retirement accounts (IRAs) and health savings accounts (HSAs).