Congress should pass legislation that would give victims of natural disasters access to permanent and timely tax relief, according to Troy K. Lewis, CPA, CGMA, the current chair of the Tax Executive Committee of the American Institute of CPAs.
“Our current system provides inconsistent tax relief,” Lewis testified at a hearing of the Senate Finance Subcommittee on Taxation and IRS Oversight. “In the past, Congress has considered each disaster as an isolated event and restricted any special tax relief to the individual event.”
As a result, he said, similarly-situated taxpayers receive different tax benefits for comparable losses. “It is important that all victims – regardless of the state in which they reside or the type of disaster they endure – receive comparable relief.”
The tax relief should be triggered when a federal disaster declaration is issued, Lewis said. “By having a trigger mechanism in place, Congress allows the IRS to promptly issue notice of the available relief to the public and enables the IRS to program its systems appropriately.”
“Under the current system,” he said, “individuals and small business owners do not know what tax relief they will receive until Congress enacts legislation sometimes months or even years after the event. The uncertainty surrounding such delayed relief impedes recovery.”
Lewis outlined 10 specific permanent recommendations that the AICPA believes should be activated when a taxpayer resides in, or has a principal place of business located in, a Federal Emergency Management Agency disaster declaration area for which individual disaster assistance is available.
Among the recommendations are:
- Waive individual casualty loss minimums;
- Waive the penalty for early retirement withdrawal;
- Exclude non-business discharge of indebtedness from taxable income;
- Extend the net operating loss carryback to five years, and
- Increase the property replacement period to five years.
In addition, Lewis said, “A set of standard disaster tax relief provisions will minimize the administrative burdens on the victims as well as the IRS.”