For experienced tax professionals, understanding the mechanisms for tax relief during unforeseen events is paramount. Internal Revenue Code (IRC) Section 7508A currently provides the Secretary of the Treasury with broad authority to postpone certain tax-related deadlines due to specific types of disasters and actions. However, a recently passed bill, the "Filing Relief for Natural Disasters Act" (H.R. 517), passed by both the House and the Senate, aims to significantly expand the scope and duration of this relief. This article details the existing provisions of Section 7508A and illuminates the key modifications this bill would introduce if enacted. The bill was awaiting the President’s signature at the time this article was written.

Current Framework of IRC Section 7508A

Currently, IRC Section 7508A grants the Secretary the authority to specify a period of up to one year that may be disregarded when determining tax liabilities for taxpayers affected by certain events. This period impacts whether specific acts, as described in paragraph (1) of section 7508(a), were performed on time, the amount of any interest, penalty, additional amount, or addition to the tax for periods after the event date, and the amount of any credit or refund.

The events currently triggering this relief include:

A federally declared disaster, as defined by section 165(i)(5)(A). The definition of "federally declared disaster" was updated in 2008 from "Presidentially declared disaster" and in 2018 to reference section 165(i)(5)(A).
A significant fire, which is defined as any fire for which assistance is provided under section 420 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5187). The inclusion of "significant fire" was added in 2021.
A terroristic or military action, as defined in section 692(c)(2).

Special rules also apply to pension or other employee benefit plans, and any associated sponsor, administrator, participant, beneficiary, or other person affected by such a disaster, fire, or action. For these, the Secretary may also specify a period of up to one year to be disregarded in determining deadlines for required or permitted actions under this title, ensuring that no plan is treated as failing to operate solely due to this disregard.

In addition to the discretionary period, Section 7508A also provides for a mandatory 60-day extension for "qualified taxpayers". This period begins on the earliest incident date specified in the disaster declaration and ends 60 days after the later of that earliest incident date or the date the declaration was issued. This mandatory period is disregarded for specific acts related to tax liability. The list of "qualified taxpayers" is comprehensive, including:

Any individual whose principal residence is located in a disaster area.
Any taxpayer whose principal place of business (excluding employee services) is in a disaster area.
Relief workers affiliated with recognized government or philanthropic organizations assisting in a disaster area.
Taxpayers whose necessary records for meeting a deadline are maintained in a disaster area.
Individuals visiting a disaster area who were killed or injured as a result of the disaster.
Spouses on a joint return with an individual described in any preceding category.

A "disaster area" for this mandatory extension means an area where a major disaster, for which the President provides financial assistance under section 408 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, occurs. This mandatory 60-day rule also applies to certain pension-related actions, such as contributions and rollovers. Importantly, this mandatory period is in addition to (or concurrent with) any period specified by the Secretary under subsections (a) or (b). Furthermore, for multiple declarations relating to a disaster area issued within a 60-day period, a separate 60-day period is determined for each declaration.

A real-world application of this authority was seen during the COVID-19 pandemic, where the President directed the Secretary of the Treasury to use Section 7508A to defer the withholding, deposit, and payment of certain payroll tax obligations for specific periods in 2020 without penalties, interest, or additions to tax, for employees whose bi-weekly wages were generally less than $4,000.

Proposed Enhancements Under the Filing Relief for Natural Disasters Act

The "Filing Relief for Natural Disasters Act" proposes two significant changes to Section 7508A that would broaden its applicability and increase the duration of automatic relief.

Authority for State-Declared Disasters

Perhaps the most impactful proposed change is the addition of a new subsection (c), which would allow the Secretary to apply the rules of current subsections (a) and (b) to certain State-declared disasters. This marks a crucial departure from the current requirement for a federal declaration or a specific type of significant fire.

Under this proposed new provision:

The Secretary, after consultation with the Administrator of the Federal Emergency Management Agency (FEMA), may apply the tax relief rules to a "qualified State declared disaster".
This application would require a written request from the Governor of a State (or the Mayor, in the case of the District of Columbia).
A "qualified State declared disaster" is broadly defined as any natural catastrophe (including hurricanes, tornadoes, storms, high water, wind-driven water, tidal waves, tsunamis, earthquakes, volcanic eruptions, landslides, mudslides, snowstorms, or droughts), or, regardless of cause, any fire, flood, or explosion. The key condition is that the Governor (or Mayor) determines the event causes damage of sufficient severity and magnitude to warrant the application of Section 7508A’s rules.
The term "State" for these purposes explicitly includes the District of Columbia, Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands.

This new authority, if enacted, would be redesignated as subsection (c), with the current subsections (c), (d), and (e) being redesignated as (d), (e), and (f) respectively.

Extension of Mandatory Relief Period to 120 Days

The second significant change proposed by the Act relates to the mandatory extension period. The bill would amend the redesignated subsection (e) (currently subsection (d)) to change the mandatory 60-day extension to 120 days. This means:

The period beginning on the earliest incident date and ending 60 days after the later of the incident date or declaration issuance would instead end 120 days after the later of those dates.
The "multiple declarations" rule, which currently applies if declarations are issued within a 60-day period, would similarly be adjusted to a 120-day period.
The heading of the subsection would also be updated to reflect this 120-day period.

This proposed change would double the duration of automatic relief for qualified taxpayers and pension plans, providing a more substantial buffer for those affected by federally declared disasters.

Implications for Tax Professionals

If enacted, the "Filing Relief for Natural Disasters Act" would significantly enhance the range of circumstances under which tax relief can be granted.

Expanded Scope: The ability for state-declared disasters to trigger federal tax relief is a major expansion. This could benefit clients in areas affected by severe localized events that do not meet the criteria for a presidential declaration but are nonetheless devastating at a state level. Tax professionals will need to monitor state-level disaster declarations and gubernatorial requests for IRS relief, in addition to federal declarations.
Increased Automatic Relief: The extension of the mandatory relief period from 60 to 120 days would provide more time for affected taxpayers to comply with filing and payment obligations without needing to seek discretionary relief from the Secretary. This increased buffer can be critical for individuals and businesses grappling with the immediate aftermath of a disaster.
Due Diligence: Professionals will need to remain vigilant regarding the specific definitions of "qualified State declared disaster" and the procedural requirements, such as the Governor’s written request and FEMA consultation, that would trigger relief under the new subsection (c).

The amendments proposed by this bill would apply to declarations made after its date of enactment. As this bill has already passed the House of Representatives, tax professionals should stay informed about its progress through the legislative process to be prepared for these potential and impactful changes to disaster tax relief.

Prepared with assistance from NotebookLM.