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Proposed Regs May Fall Short for Taxpayers Hit by Disasters

Posted on Mar. 15, 2021

The regulations the IRS and Treasury proposed to implement Congress’s new mandatory and automatic disaster filing deadline relief don’t follow through on the legislative promise, a benefits group warned.

In a March 9 comment letter on the proposed section 7508A(d) regs (REG-115057-20), the American Benefits Council asserts, “As we understand that 2019 legislation [creating section 7508A(d)], Congress intended to create a new mandatory and automatic deadline extension for taxpayers who have been affected by federally-declared disasters.”

In January the IRS and Treasury issued the proposed regs for implementing section 7508A(d), a provision enacted in late 2019 that adds a mandatory 60-day extension to due dates after the declaration of a disaster.

The government interpreted section 7508A(d)’s mandatory 60-day period as dependent on exercise of the discretionary relief in section 7508A(a). The proposed regs would also subject section 7508A(d) relief for an open-ended disaster announcement to the same one-year limit as subsection (a) and deny any subsection (d) relief if a disaster declaration has no dates at all.

By making section 7508A(d) relief dependent on subsection (a) discretion, the proposed regs wouldn’t be providing automatic and mandatory relief, according to the council. “We disagree with this proposed interpretation and urge Treasury and the IRS to issue final regulations that recognize truly mandatory and automatic deadline relief,” it said.

Acknowledging the government’s concerns about open-ended disaster declarations, the letter suggests the final regs simply start the section 7508A(d) 60-day period at the earliest date mentioned in the relevant disaster declaration. “This approach would provide an automatic and reasonable delay for disasters that occur over a few days, as well as disasters that have an indefinite duration,” the council argues. Of course, discretionary relief greater than 60 days would be welcome for “particularly devastating disasters,” it said.

The council had another suggestion relevant to its particular subject area: It asks for clarification that section 7508A deadline extensions are optional for taxpayers. “For example, if a qualified retirement plan requires participants to complete rollovers within 60 days of a distribution, the plan should be permitted, but not required, to accept rollovers after that 60-day deadline if a participant becomes eligible for deadline relief under Code Section 7508A,” the letter said.

Finally, the council reminded the IRS and Treasury that section 7508A(d) was enacted in December 2019 and the proposed regs weren’t issued until over a year later.

Notably, that delay included the COVID-19 pandemic and nationwide disaster declarations.

The council suggested that taxpayers be provided relief in the final regs for good-faith and reasonable attempts to interpret section 7508A(d) until at least 60 days after the final regs are published in the Federal Register.

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