State Disasters Now Qualify for Federal Tax Relief

You are stranded in Flash Flood Alley, Texas during the storms earlier this month. The rapids subside. Rescue crews arrive. The Governor declares an emergency. You head home for some rest and fireworks on the Fourth. Then it hits you: what if the Feds don’t declare an emergency? What if you still have to file and pay your taxes on time, despite the tragedy?

As it happens, FEMA issued a Major Disaster Declaration just two days after the Texas governor requested relief.

These disasters are no joke. And here, as usual, the federal government approved the request. But over the past 72 years, an average of 18 requests have been denied each year. Until now, that put the IRS in a bind. Why? Because Section 7508A allowed the agency to grant relief only to taxpayers affected by federally declared natural disasters or significant fires—both limited to situations where the federal government assists under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. That inevitably left some deserving taxpayers stuck with no relief and little the IRS can do to help.

The Filing Relief for Natural Disasters Act, which was signed into law late yesterday afternoon, changes all that. The Act amends Section 7508A by allowing the IRS postpone statutory deadlines—including the refund statute—for up to one year. The agency no longer has to wait for approval from the rest of the federal government. And the relief is sweeping: deadlines for filing returns, paying taxes, making retirement contributions, and even for assessments and collections all get pushed back when the IRS grants relief.

The Act also doubles the automatic extension from 60 to 120 days for individuals living or working in the disaster zone. The IRS can apply this relief automatically—no sweat. But applying the same relief to workers from recognized government or philanthropic organizations, or workers whose records the floods destroyed, proves trickier. While these taxpayers qualify for identical relief, they typically must ask for it. The taxpayer or her advisor needs to nudge the IRS into action. With enough persistence, this becomes a powerful tool for slashing penalties and interest when other defenses like reasonable cause fall short.

Emboldening the IRS to use state-declared disasters to grant relief to taxpayers is a welcome advancement that helps to reduce the stress and emotional toll when tragedy strikes.

If you have any questions on this or any other tax issue, please call me at 214-749-2459 or email me at npegelow@meadowscollier.com.