Special rules related to delayed dates due to Presidentially declared disaster areas suddenly became very topical in the late summer and fall of 2017. In Chief Council Email Advice 201740021 an effect of a delay in dates under what we view as the relief provision of IRC §7508A is noted.
IRC §7508A grants the IRS the authority to “stop time” for a period of up to one year for taxpayers affected by a Presidentially declared natural disaster. The main provisions, found in subsection (a), provide:
(a) In general
In the case of a taxpayer determined by the Secretary to be affected by a federally declared disaster (as defined by section 165(h)(3)(C)(i)) or a terroristic or military action (as defined in section 692(c)(2)), the Secretary may specify a period of up to 1 year that may be disregarded in determining, under the internal revenue laws, in respect of any tax liability of such taxpayer--
(1) whether any of the acts described in paragraph (1) of section 7508(a) were performed within the time prescribed therefor (determined without regard to extension under any other provision of this subtitle for periods after the date (determined by the Secretary) of such disaster or action),
(2) the amount of any interest, penalty, additional amount, or addition to the tax for periods after such date, and
(3) the amount of any credit or refund.
The “acts” found in §7508(a)(1) noted above are:
- Filing any return of income, estate, gift, employment, or excise tax;
- Payment of any income, estate, gift, employment, or excise tax or any installment thereof or of any other liability to the United States in respect thereof;
- Filing a petition with the Tax Court for redetermination of a deficiency, or for review of a decision rendered by the Tax Court;
- Allowance of a credit or refund of any tax;
- Filing a claim for credit or refund of any tax;
- Bringing suit upon any such claim for credit or refund;
- Assessment of any tax;
- Giving or making any notice or demand for the payment of any tax, or with respect to any liability to the United States in respect of any tax;
- Collection, by the Secretary, by levy or otherwise, of the amount of any liability in respect of any tax;
- Bringing suit by the United States, or any officer on its behalf, in respect of any liability in respect of any tax; and
- Any other act required or permitted under the internal revenue laws specified by the Secretary.
Note that while the beginning of the list contains deadlines that it is generally in the taxpayer’s interest to have extended, that is not true of many of the items later in the list.
Of particular interest in that list is the following item discussed in the email:
Section 7508A would suspend the time for making assessments for the postponement time that applies to this disaster.
However the email may be overstating the issue—or, at least, under the regulations for IRC §7508A, the IRS is allowed to “pick and choose” which actions it will delay. While the law doesn’t state that the IRS can “pick and choose” among the actions, Reg. §301.7508A-1(b)(1)(i) specifically allows the IRS to delay any or all acts that are described in the statute.
As well, the example in the regulation where there is a question of the final date to assess tax specifically mentions the IRS determining specifically that the due date for government actions would also be extended.
The examples illustrating the differences, found in Reg. §301.7508A-1(f), read as follows:
Example 1. (i) Corporation X, a calendar year taxpayer, has its principal place of business in County M in State W. Pursuant to a timely filed request for extension of time to file, Corporation X’s 2008 Form 1120, “U.S. Corporation Income Tax Return,” is due on September 15, 2009. Also due on September 15, 2009, is Corporation X’s third quarter estimated tax payment for 2009. Corporation X’s 2009 third quarter Form 720, “Quarterly Federal Excise Tax Return,” and third quarter Form 941, “Employer’s Quarterly Federal Tax Return,” are due on October 31, 2009. In addition, Corporation X has an employment tax deposit due on September 15, 2009.
(ii) On September 1, 2009, a hurricane strikes County M in State W. On September 7, 2009, certain counties in State W (including County M) are determined to be disaster areas within the meaning of section 1033(h)(3) that are eligible for assistance by the Federal government under the Stafford Act. Also on September 7, 2009, the IRS determines that County M in State W is a covered disaster area and publishes guidance announcing that the time period for affected taxpayers to file returns, pay taxes, and perform other time-sensitive acts falling on or after September 1, 2009, and on or before November 30, 2009, has been postponed to November 30, 2009, pursuant to section 7508A.
(iii) Because Corporation X’s principal place of business is in County M, Corporation X is an affected taxpayer. Accordingly, Corporation X’s 2008 Form 1120 will be timely if filed on or before November 30, 2009. Corporation X’s 2009 third quarter estimated tax payment will be timely if made on or before November 30, 2009. In addition, pursuant to paragraph © of this section, Corporation X’s 2009 third quarter Form 720 and third quarter Form 941 will be timely if filed on or before November 30, 2009. However, because deposits of taxes are excluded from the scope of paragraph (c) of this section, Corporation X’s employment tax deposit is due on September 15, 2009. In addition, Corporation X’s deposits relating to the third quarter Form 720 are not postponed. Absent reasonable cause, Corporation X is subject to the failure to deposit penalty under section 6656 and accrual of interest.
Example 2. The facts are the same as in Example 1, except that because of the severity of the hurricane, the IRS determines that postponement of government acts is necessary. During 2009, Corporation X’s 2005 Form 1120 is being examined by the IRS. Pursuant to a timely filed request for extension of time to file, Corporation X timely filed its 2005 Form 1120 on September 15, 2006. Without application of this section, the statute of limitation on assessment for the 2005 income tax year will expire on September 15, 2009. However, pursuant to paragraph (c) of this section, assessment of tax is one of the government acts for which up to one year may be disregarded. Because September 15, 2009, falls within the period in which government acts are postponed, the statute of limitation on assessment for Corporation X’s 2005 income tax will expire on November 30, 2009. Because Corporation X did not timely file an extension of time to pay, payment of its 2005 income tax was due on March 15, 2006. As such, Corporation X will be subject to the failure to pay penalty and related interest beginning on March 15, 2006. The due date for payment of Corporation X’s 2005 income tax preceded the postponement period. Therefore, Corporation X is not entitled to the suspension of interest or penalties during the disaster period with respect to its 2005 income tax liability.
The initial guidance is silent on whether the IRS is going to treat this as an event extending the time for government action. However, prudence suggests that advisers presume the IRS will do so for taxpayers in affected areas