Tuesday, June 11, 2013



When a disaster strikes, taxes are not your first concern. But as the post-event realities hit you, the realization comes into your list of things that must be deal with:

There will be income tax reporting consequences of the event.

Depending on financial recovery possibilities such as insurance and other sources of compensation you may have:
A tax deductible casualty loss or
The event may have turned into what the Tax Code calls an Involuntary Conversion because the insurance proceeds exceed the “cost basis” of the property damaged or destroyed.

In either case this blog is dedicated to providing taxpayers and tax professionals with assistance in the process of recovery with information on complying with their income tax reporting responsibilities that arise out of these tragic situations.

One of the most difficult and yet the most basic aspect of the tax consequences of dealing with the tax responsibilities arising out of a disaster is this simple concept:

Unlike most income tax laws, the Tax Code sections applicable to disasters are structured to assist taxpayers in their recovery process.

This concept is often difficult to grasp as it is opposite from what we know as the Tax Code’s basic reason to exist,
Generating revenue to run the government.

But It is true in these cases. The Code is structured to get taxpayers back to their pre-loss condition as well as the Code can accomplish that. Another way to look at it is that the Code is structured to get out of way of the recovery. The Tax Code is not structured to be a replacement for insurance. But to the extent that the Tax Code would otherwise add to the taxpayer’s difficulties without these Code sections, it has been written to remove those impacts. The only thing that the Code requires is following the rules set forth to take advantage of the beneficial Code sections.

Specific issues are discussed in this blog as a result of situations that I have dealt with on clients for over twenty years. Some of the most interesting situations that I have been able to work on is “fixing” mistakes made by other tax professional. Other issues come to light from search questions and comments left by readers of this blog. In the tabs under the PROCESS OF RECOVERY tab there is a step-by-step discussion of the major aspects of the income tax recovery process.

As a tax professional who has dedicated years to this area of practice I am available to assist individual taxpayers in the process of recovery as well as assisting other tax professionals as they work to catch up with the needs of their clients who are recovering from a disaster.

Most people who are “forced” to deal with a disaster have no prior experience in the process; that includes their tax professionals. But the dollar amounts that are involved can be some of the biggest amounts taxpayers will see reported on their returns. As a taxpayer who is dealing with this process you deserve an outcome that you can rely on and sleep soundly at night.

I am also available to speak to groups of people who have recently experienced a disaster as I have done after several disaster events over the past twenty years.

As someone who has actually experienced a major loss first hand, watching a family home of eighteen years turned into an insurance claim, I understand what you are going through.

Does the IRS always follow the Tax Code? They are supposed to. Congress passed the various sections of the Code and Presidents signed them into law. That has happened over a period of 100 years. Numerous members of Congress have had their shot at tinkering with the Tax Code. Problems do arise. Sometimes (maybe too often) the Code is not written as clear as it should be. In some instances the IRS simply makes mistakes.
Testimony to the possibility of disagreement is the long list of tax returns that end up in a federal courtroom. Taxpayers don’t always loose in court, they don’t always win. The best protection is having the return prepared by a tax professional who understands the technical details of your situation and what needs to be included in the presentation of your facts in a tax return.

This blog, “AccountantForDisasterRecovery.com” has been addressing taxpayer income tax issues related to catastrophic losses for five years
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

Contact us through our website at:

Blog: www.AccountantForDisasteRrecovery.com

                           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
© 2013, John Trapani, CPA,

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