Thursday, November 1, 2012



You experienced severe damage or maybe a total loss from Hurricane Sandy.

Are the beneficial tax provisions in the Internal Revenue Code available to you?


The hurricane affected a huge area of the north eastern portion to the United States. The President declared an Emergency for nine states on October 29, 2012. That declaration was reported as a disaster declaration on many news outlets. – They were not a disaster declarations.

The Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) was enacted into law on September 15, 2005. It established three levels of federal assistance for catastrophic events. The two “lower” levels are
“Emergency Management Assistance” and “Fire Management Assistance.” Neither of these assistance declarations make the special sections of the Internal Revenue Code available to taxpayers. Only the highest level: “Major Disaster Declaration” allows taxpayers to take advantage of the tax benefits available to taxpayers. This does not exclude taxpayers from using the other Casualty Loss and Involuntary Conversion tax provisions that are available to any taxpayer who qualifies for those provisions.

As to Hurricane Sandy, on October 29th, as reported in a blog entry:


The President made Emergency Management Declarations for nine states. This action made available to those states federal aid, but had no affect on the ability of taxpayers to apply the special disaster tax rules.

Then on October 30th, the President issued three Major Disaster Declarations for selected counties in three states as reported in the blog entry:

“Hurricane Sandy – FEMA Disaster Declarations”

This action by the President makes available to taxpayers who have businesses in these counties and individual taxpayers who reside in these counties, the special benefits of the disaster tax sections of the Internal Revenue Code.

As taxpayers and tax professionals, it is important that only businesses and residents located in the listed counties report the affects of the Hurricane using the special provisions of the Internal Revenue Code. Claiming losses or using the additional tax deferral benefits available to those who experience a disaster when they do not apply could only add to the disastrous situation that Hurricane Sandy has wrought to you and your clients.

But remember, if you did experience damage and have an insurance claim and collect insurance proceeds or are not insured or under insured and you or your business is outside the designated disaster areas, you still have casualty and involuntary conversion provisions available to you.

For losses you will need:
·         Cost basis of property lost
·         Insurance and other similar proceeds received and expected to be received
·         Fair market of property lost, immediately before and immediately after the hurricane struck

If the insurance proceeds exceed the cost basis of the assets lost (including insurance that will be collected in a subsequent year), there is a gain. The “involuntary conversion rules” apply allowing, at the election of the taxpayer, the deferral of tax as long as qualified property is acquired to replace the damaged property or the property is repaired and the required proceeds have been spent on the restoration or replacement.

You will need:
·         Cost basis of property lost
·         Insurance and other similar proceeds received and expected to be received
·         Maintain records of repairs and replacement of assets lost.

In both cases there are very specific requirements for reporting to the tax authorities.

The special disaster tax rules make it easier to comply with the rules and exclude some portions of proceeds from any reporting.

If a taxpayer receives insurance or other similar proceeds and makes no required reporting to the tax authorities of that receipt, the taxpayer is opening them self up to an unlimited time period for the possibility of the examination of their tax returns by the tax examiners for the years, starting with 2012 and extending until they have stopped receiving insurance proceeds.

The tax code in this area is written to provide relief to taxpayers, but if the reporting requirements are not complied with the penalties can be very harsh.

The dollar amounts are very significant in these cases the reporting compliance should be followed with great care.

We hope that those who have experienced Hurricane Sandy as well as all those who experienced other catastrophic losses this year and those who are still in recovery from losses in past years resilience and the emotional strength to work persistently on the recovery process.

All rights to reproduce or quote any part of the chapter in any other publication are reserved by the author. Republication rights limited by the publisher of the book in which this chapter appears also apply.


Certified Public Accountant

2975 E. Hillcrest Drive #403

Thousand Oaks, CA 91362

(805) 497-4411       E-mail


                           It All Adds Up For You                     


This material was contributed by John Trapani. A Certified Public Accountant who has assisted taxpayers since 1976, in analyzing and reporting transactions of the type covered in this material.  
Internal Revenue Service Circular 230 Disclosure
This is a general discussion of tax law. The application of the law to specific facts may involve aspects that are not identical to the situations presented in this material. Relying on this material does not qualify as tax advice for purpose of mounting a defense of a tax position with the taxing authorities
The analysis of the tax consequences of any event is based on tax laws in effect at the time of the event.
This material was completed on the date of the posting
© 2012, John Trapani, CPA,

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