Friday, June 26, 2009



Apparently, the answer is yes. A client received a letter from the IRS recently and forwarded it on to this office. The IRS claimed that several calculations were made incorrectly on the tax return and requested that the taxpayer pay a modest amount of additional tax.

Some taxpayers who receive such a letter might conclude that the IRS was correct, the amount was small and therefore not worth bothering calling the office of the CPA who prepared the return.

This client did not do that. The letter was sent to us and I called the IRS number on the letter. At the first level, the screener decided that this was a matter that needed to be forwarded to another specialist. The specialist was very courteous and asked for specific information from the letter and tax return which was supplied. Almost immediately, the specialist indicated that the IRS was having trouble with their computer. They had not been able to fix the problem, but it was apparent that their letter was bogus. The specialist went off-line for about 15 minutes and then returned to inform me that the original calculations in the return were correct and the IRS had made a mistake. The client will be sent a letter in 2-3 weeks correcting the IRS error.

Unfortunately, the IRS only responds to inquiries. They are not determining whose returns were affected by this problem.

In any case where you receive a letter changing your tax liability, please do not hesitate to send it to me for validation. There is no charge for this review.

Saturday, June 6, 2009



Last November 230 families lost their homes in the Tea Fire in Santa Barbara County. This past May neighbors in the Tea Fire area in Santa Barbara County saw 80 families lose their homes in the Jesusita Fire.

Within two weeks of the Tea Fire, the Federal Government had declared the Tea Fire a federal disaster area. It has been a month since the Jesusita Fire started and yet the only FEMA declaration is that it is eligible for fire management assistance. It has not been declared a federal disaster area.

A federal disaster declaration opens up a number of federal assistance programs to the people who experienced the event. From an income tax perspective this includes the following:
* Ability to claim a casualty loss on either the 2008 or 2009 income tax return.
* Elimination for 2007-2009 disasters, the usual 10% of Adjusted Gross Income reduction in the amount claimed as a casualty loss.
* The normal replace period where a gain has been realized due to insurance proceeds exceeding the cost basis of the home is extended two additional years.
* Insurance proceeds for personal property do not have to be accounted for; there is no requirement that these funds be reinvested or that any computation of potential gain be computed.
* In a disaster, the proceeds received from; insurance for structure may be reinvested in a “pool” of personal use assets that may include personal use real estate and contents of the personal use real estate.
* In non-disaster situations personal property losses must be computed, a horrendous, time-consuming task. If there is a gain the proceeds must be reinvested in property that is similar or related in service or use to the property lost.

Generally, the process in disaster situations is much less restrictive and more in tune with the situation facing a large group of people who have experienced the same horrific event.

On Thursday, June 4th the offices of the two Congressional representatives were contacted. Brian Miller at Congressman Elton Gallegly’s Thousand Oaks office stated that it is the responsibility of the State of California to request the declaration and the Congressman’s office had not been aware of any request for their office personal to get involved. He also stated that it was their understanding that none of their constituents had lost a home. Additionally, when I first introduced myself at the office and asked about the Jesusita Fire, I got what amounts to be a blank response, “What Fire?”

Later, Thursday morning, my office called the Santa Barbara office of Congresswoman Lois Caps and they informed us that they were “working on it;” at least they were involved.

Then, I called a number for the California Office of Emergency Services and got voice mail. I left a message asking for information about the declaration request from their end. Finally, I sent emails to the Santa Barbara Media Center that is coordinating media and local government communication and one to the Mission Canyon Association.

It will be a very unfortunate situation if the people who experienced the Jesusita Fire are treated differently than those who experienced the Tea Fire, simply because “only” 80 homes were lost instead of 230 homes.

One of the basic reasons for declaring a catastrophe a federal disaster area is because of the impact on the community of the large number of homes that now have special needs. In this case the people who experienced the Tea Fire are still in need of assistance and they are being affected by the new Jesusita fire. They have access to services including tax relief. But the people who experienced the Jesusita Fire, who also need special assistance are also affected by the people who experience the Tea Fire are still placing strains on the resources. Yet the Jesusita Fire is being treated as a small event, not worthy of special federal assistance. Something is not working in the system.