Tax Policy and Disaster Recovery (CRS Report for Congress)
| Release Date |
Revised Sept. 11, 2018 |
| Report Number |
IF10730 |
| Report Type |
In Focus |
| Authors |
Molly F. Sherlock |
| Source Agency |
Congressional Research Service |
| Older Revisions |
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Summary:
At times, Congress has chosen to use tax policy to provide
relief and support recovery following disaster incidents.
This In Focus discusses, in broad terms, disaster-related tax
policy. Challenges associated with using the tax code to
deliver federal financial assistance following natural
disasters are also discussed.
The Internal Revenue Code contains a number of
permanent disaster-related tax provisions. These include
provisions providing that qualified disaster relief payments
and certain insurance payments are excluded from income,
and thus not subject to tax. Taxpayers are also able to
deduct casualty losses and defer gain on involuntary
conversions (an involuntary conversion occurs when
property or money is received in payment for destroyed
property). The Internal Revenue Service can also provide
administrative relief to taxpayers affected by disasters by
delaying filing and payment deadlines, waiving
underpayment of tax penalties, and waiving the 60-day
requirement for retirement plan rollovers. The availability
of certain tax benefits is triggered by a federal disaster
declaration. Before 2017, casualty losses were generally
deductible. However, changes made in the 2017 tax
revision (P.L. 115-97) restrict casualty loss deductions to
federally declared disasters.
Temporary tax-related disaster relief measures were enacted
following a number of major disasters that occurred
between 2001 and 2017. For recent major hurricane events,
temporary tax relief measures were enacted following
Katrina and the other Gulf Coast hurricanes of 2005. There
was not, however, a comparable package of tax benefits
provided following tropical storm Irene in 2011 or
Hurricane Sandy in 2012. Some general disaster provisions
were available for all disasters declared in 2008 and 2009.
Congress also enacted tax relief following Hurricanes
Harvey, Irma, and Maria in 2017. Similar tax relief was
provided following the California wildfires in 2017 and
early 2018. The 2017 tax revision (P.L. 115-97) also
included certain provisions that were generally applicable
to 2016 or 2017 disasters.
