Legal Services Group Examines Proposed Disaster Relief Regs

In re: IRS Docket Number 2021-0002 — Mandatory 60-Day Postponement of Certain Tax-Related Deadlines by Reason of a Federally Declared Disaster

I. Introduction

Neighborhood Legal Services of Los Angeles County (NLSLA) appreciates this opportunity to comment on the Internal Revenue Service's (IRS) proposed rule on Mandatory 60-Day Postponement of Certain Tax-Related Deadlines by Reason of a Federally Declared Disaster, Docket Number 2021-0002, REG-115057-20 (Rulemaking). NLSLA is a Legal Services Corporation (LSC) 501(c)(3) non-profit, providing free legal services, self-help clinics, and systemic advocacy to the Antelope, San Fernando, and San Gabriel Valleys. NLSLA assists many individuals and families in our service area each year, in a wide range of subjects including employment, benefits, family, and housing law, and additionally providing disaster legal services through our Disaster Assistance Project (DAP).

II. Which Time-Sensitive Acts Fall within the Provisions of Section 7508A(d)

NLSLA is concerned about any attempt to limit or reduce which acts are postponed, as relief from IRS actions and deadlines provides significant stability for low-income individuals during the challenging disaster recovery process. Disaster recovery is a process fraught with challenges, impediments, and struggle. This is especially true for low-income individuals, who, by having less financial means, are more severely impacted by housing and food insecurity, challenges in procuring funds to rebuild, and have a greater need for federal or state funds or benefits to complete such rebuild. Tax requirements present unique challenges for disaster survivors, but also opportunities for much-needed relief,¹ such as with the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (TCDTRA). The House Report on the TCDTRA includes a list of potential acts that could be suspended under Section 7508A(d);² we would encourage the Secretary to include as many of these events as possible when making such determination. Including those acts from the House Report among those to be postponed also appears to be the intent of the House Report.³ Due to the immense burden that falls upon low-income individuals, and the significant financial repercussions therefrom, NLSLA remains concerned about any restrictive application of which consequential tax acts would be postponed, and would encourage a broad presumption of what acts would be included.

Additionally, NLSLA remains concerned that the Rulemaking makes an attempt to reduce Section 7508A(d) to a discretionary action through the linkage of Section 7508A(a) to 7508A(d); the headings of the section alone, as well as the House Report demonstrating the intent of the TCDTRA to make Section 7508A(d) a parallel regime to existing authority to postpone deadlines under Section 7508(a),⁴ indicates that this provision is mandatory upon a disaster declaration and must provide additional tax relief over existing statutory protections. As disasters cause immense hardship among low-income individuals, postponing tax filing and other tax-related acts, or enshrining that at minimum certain acts that would require an immediate response would be postponed, would grant much needed relief and stability while preventing additional financial burdens from being placed on those least able to recover.

III. Removal of Disasters without Incident Dates from the application of the TCDTRA

This Rulemaking proposes making disasters without incident dates in the federal disaster declaration discretionarily subject to the TCDTRA's requirements for a mandatory 60-day tax filing postponement period. NLSLA is concerned that these changes may remove these crucial protections and significantly harm low-income individuals and impede their recovery process. Disaster victims in general, and especially low-income individuals⁵ face significant barriers to recovery, and are uniquely burdened in the short-term aftermath. Due to this burden, postponement of tax filing and other tax administration requirements and deadlines is crucial to the economic, financial, and emotional well-being of disaster victims. Victims are frequently displaced for lengthy periods of time but especially in the immediate aftermath of disasters; for example, high displacement was seen 150 days after Hurricane Maria.⁶ Displacement adds additional barriers to tax filing, especially for low -income individuals, by being geographically separated from tax filing assistance, being unable to retrieve documents from their residences, and programs such as Low Income Tax Clinic (LITC) may be unavailable in a severe disaster due to infrastructure damage. Unfortunately, homelessness is exceedingly common in the aftermath of disasters,⁷ and filing taxes is nearly impossible without fixed addresses and any basic amenities required for obtaining and submitting the requisite forms. Even those with guaranteed housing such as Section 8 or HUD funds may need to relocate to other housing facilities, and thus need to comply with those administrative demands.

Administrative burdens may be impossible to comply with for another simple reason — important documents are frequently destroyed from the disaster itself.⁸ A wildfire knows no boundaries; all tax documents may be burned in the process. Not just tax documents of course, but other documents such as birth certificates, driver's licenses, passports, titles to property, proof of immigration status, and marriage licenses are frequently among the items lost when a disaster strikes. Considering the consecutive effect of losing essential documents, it may take weeks or even months to obtain replacements; to get a replacement driver's license requires a replacement birth certificate, to obtain a replacement title to property requires both, and so on. By the time the replacement documents are obtained, weeks have passed and tax deadlines may be violated.

Aside from the physical or literal impossibility to file taxes, there are many other impediments for low-income individuals that make filing taxes even more challenging. Related to housing insecurity, landlord-tenant issues and evictions are common among these individuals post-disaster, and relate to basic needs, the last thing they need to be worrying about is filing their taxes. Immediately after a disaster, survivors are focused on on obtaining FEMA and/or SBA assistance, debris removal, insurance claims, and other rebuilding funds. The early stages are crucial to ensure the receipt of funds, and have their own strict deadlines to comply with. This process also entails applications to public assistance and services, preparing for the rebuild process, as well as coping with the loss of loved ones, and processing substantial trauma from the event itself.⁹ Adding tax penalties to the immense economic and personal burden of recovery does not serve in the interests of victims, society, or the IRS itself, as insurmountable financial loss can remove one from the labor force. It is therefore prudent, in light of the steep hill of recovery born by low-income individuals, to postpone tax act deadlines to avoid placing yet another barrier to recovery.

Removing disasters that do not have specified incident dates — of which the Rulemaking proposal admits can include any natural disaster,¹⁰ as even wildfires and earthquakes do not always have incident dates in their disaster declaration — has the potential impact of reducing the statute to null. It is unclear from the Rulemaking if this change will only relate to disasters which never receive an incident date, or those which do not immediately; NLSLA is concerned about any change that would remove wildfires and earthquakes from the mandatory provisions of TCDTRA, considering the immense burden that disasters confer on everyone, especially low-income and vulnerable individuals.

IV. The Definition of Federally-Declared Disaster

The Rulemaking proposes defining “federally declared disaster” under IRS Code section 165(i)(5)(A) to include major disasters declared under Section 401 of the Stafford Act as well as emergencies declared under Section 501 of the Stafford Act. NLSLA is pleased with any changes that involves a permissive or expansive definition of disaster in regards to the intersection of applicable statutes. A presumption in favor of disaster protections ensures better interpretation and therefore administration of disaster provisions and programs, that are more likely to provide positive on-the-ground effects for individuals impacted by disasters. As previously mentioned, disaster victims are struggling with a multitude of problems in the short-term after such events occur, with applications for assistance, potential destruction of paperwork, housing and food insecurity, and trauma. This is an even greater barrier to low-income persons, who are unable to afford private-sector tax services and are at more of a risk of housing insecurity or homelessness.

V. The Rules as Applied to the COVID-19 Pandemic

We generally prefer flexible solutions cognizant of the needs of low-income and vulnerable persons as discussed previously; however, we are not addressing the state-by-state COVID tax declaration issue in this comment.

VI. Conclusion

We appreciate the opportunity to comment on this Rulemaking and hope that our input is considered in the implementation of any final rule. Low-income disaster victims face significant barriers in recovery, and we hope that these needs are considered by the IRS when shaping policy moving forward. Please direct any comments or questions to our policy advocate, William Simonsick, at williamsimonsick@nlsla.org.

Sincerely,

William Simonsick
Neighborhood Legal Services of Los Angeles County