As we begin the 2021 filing season, some practitioners may still be reflecting on last filing season when the IRS postponed deadlines for taxpayers across the country because the start of filing season coincided with the start of the COVID-19 pandemic. It goes without saying that the pandemic has been very different from the typical natural disasters that prompt the IRS to postpone deadlines. Practitioners and taxpayers alike may wonder what future IRS disaster relief will look like as we continue grappling with this disaster and face new ones. Internal Revenue Code (IRC) § 7508A provides the IRS with the authority to postpone certain deadlines for taxpayers affected by a federally-declared disaster. In late 2019, Congress amended IRC § 7508A to provide a “mandatory 60-day extension” under subsection (d). I’ve been hearing from practitioners with questions and concerns about when this 60-day period arises and how it works. The IRS has tried to tackle some of these questions and recently issued proposed regulations to clarify the operation of IRC § 7508A(d). I urge all those interested to review the proposed regulations and submit comments. Comments are due March 15, 2021, and the IRS has scheduled a public hearing on March 23, 2021.

I want to highlight a few key elements of the proposed regulations that are of interest to practitioners and taxpayers. But first, let’s consider what IRC § 7508A allows the IRS to do, the IRS’s current procedures, and how the COVID-19 disaster broke new ground. This background will be helpful as we contemplate how the disaster relief provisions should work to help taxpayers during the pandemic and future disasters.

IRC § 7508A

For taxpayers determined by the IRS as affected by a federally-declared disaster, IRC § 7508A allows (but not requires) the IRS to disregard a period of up to a year when determining whether certain acts were timely. Under Section 7508A, the IRS may postpone any time-sensitive act arising under the internal revenue laws in respect of a tax liability. Many of the acts that can be postponed are listed in IRC § 7508(a)(1), which includes acts carried out by both taxpayers and the government such as filing and paying taxes, bringing a refund suit, and assessing and collecting taxes by levy. In addition, Revenue Procedure 2018-58 lists about 270 separate acts arising under the IRC that may be postponed. Treasury Regulation § 301.7508A-1 defines “affected taxpayer” broadly and allows the IRS to determine any taxpayer is affected by a specific disaster, even if his or her residence or place of business is not in the disaster area.

In late 2019, Congress added IRC § 7508A(d), titled “Mandatory 60-day extension.” This provision applies to a different group of “qualified taxpayers” than the general relief under IRC § 7508A(a) and does not give the IRS discretion to choose whom is or is not a qualified taxpayer. Because the language of this provision is ambiguous and has been the subject of debate, I’ll quote the language here:

In the case of any qualified taxpayer, the period— (A) beginning on the earliest incident date specified in the declaration to which the disaster area referred to in paragraph (2) relates, and (B) ending on the date which is 60 days after the latest incident date so specified, shall be disregarded in the same manner as a period specified under subsection (a).

IRS Disaster Procedures

Under the IRS’s current disaster procedures, the IRS looks to FEMA to provide a disaster declaration, which can be for Individual Assistance (for individuals and families suffering losses) or Public Assistance (to fund the repair, restoration, reconstruction, or replacement of a public facility or infrastructure). Generally, the IRS will grant administrative tax relief in the areas identified by FEMA as qualifying for Individual Assistance. On a very limited basis, the IRS may grant relief for areas identified for Public Assistance for a disaster event that impacts several states and occurs near a major filing date. The severity of the disaster and proximity of tax deadlines are primary factors in determining the level of tax relief provided. The Internal Revenue Manual (IRM) provides that a postponement period will be at least 60 days from the event date listed in the FEMA declaration.

The IRS uses two types of freeze codes to provide relief to affected taxpayers: an “S-freeze” that provides filing and payment relief without suspending compliance activities, and the more comprehensive “O-freeze” that additionally suspends the mailing of most notices, allows for special penalty/interest computation, and suspends several collection and examination activities. Both codes are systemically input for taxpayers in the covered disaster areas when the IRS has exercised relief, and affected taxpayers outside these areas can call the IRS to request an employee manually input a freeze.

COVID-19 Pandemic Disaster Declarations

The presidential declaration for the COVID-19 pandemic proceeded a little differently from past disaster declarations. The IRS exercised its authority under IRC § 7508A as result of the emergency declaration under the Stafford Act issued by the President on March 13, 2020. Unlike previous natural disaster declarations that specified incident dates and specific geographical areas involved, the emergency was declared nationwide and had no incident date. Subsequently, a specific major disaster declaration was declared for each state, each beginning on January 20, 2020, but also with no end dates. The IRS exercised its authority to postpone time-sensitive acts only in response to the emergency declaration and not in response to the state-by-state disaster declarations.

Proposed Regulations Regarding the 60-Day Mandatory Extension

The proposed regulations explain the reason for issuing them is two-fold: (1) it is unclear what time-sensitive acts are to be postponed, and (2) it is unclear how to calculate the 60-day extension period when the declaration specified in IRC § 7508A(d) does not have an incident date.

The answer to the first question based on the proposed regulations is only those acts that the IRS has identified for relief under IRC § 7508A(a) will be subject to the 60-day extension. The takeaway message here is that the 60-day extension does not arise automatically when a federal disaster is declared. The IRS must first exercise its discretion to provide relief under IRC § 7508A(a), and the 60-day extension applies only to the relief the IRS has provided. So, for example, if the IRS postpones a filing date but not a payment date under IRC § 7508A(a), then the 60-extension could not then create a 60-day postponement of the payment deadline. In this way, the proposed regulation interprets the 60-day extension as truly an “extension” and not an “expansion” because it only extends the relief that the IRS has chosen to provide.

Regarding the second question, the proposed regulations detail exactly how to calculate the 60-day period. As background, the proposed regulations first explain that IRC § 7508A(a) gives the IRS discretion to identify incident start and end dates, meaning the IRS does not have to use the “incident period” determined by FEMA when granting relief under IRC § 7508A(a). However, historically, the IRS has generally set the postponement period on the earliest date identified by FEMA and ending 120 days later, with longer relief possible if major filing deadlines are impacted. The IRS has generally extended relief beyond 60 days after the FEMA incident end date.

Turning now to when the 60-day extension starts, the proposed regulations state that if a disaster declaration has no incident date, the 60-day extension does not apply. If there is an incident date and the IRS has determined a postponement period under IRC § 7508A(a) that is 60 days or more, then the 60-day postponement period runs concurrently with this time. As a result, the 60-day “extension” would not actually provide any extended relief beyond what the IRS is already providing under IRC § 7508A(a). If the IRS determines a postponement period under IRC § 7508A(a) that is less than 60 days, only then would the 60-day extension have an effect – it would run concurrently with the relief provided by the IRS and continue after until reaching 60 days. So, under the proposed regulations, the 60-day extension operates less like an “extension” and more like a “minimum,” only ensuring that relief is provided for at least 60 days if the IRS has chosen a shorter period.

The IRM cited above indicates the IRS already generally provides relief for at least 60 days past the incident date, and the proposed regulations indicate the IRS generally provides relief for 120 days past the incident date. So, this begs the question, under the proposed regulations, will the 60-day extension period have any impact at all?

I encourage you to weigh in on the proposed regulations. Regardless of when the regulations are issued, I hope the public comments will clarify some of the issues and problems with the current disaster relief procedures. This may be a good time for the IRS to reconsider some of its administrative practices regarding disaster relief to ensure taxpayers experiencing the COVID-19 emergency as well as natural disasters can meet their tax obligations. One concern I’ve heard is the lack of IRS relief provided for some Public Assistance disasters, which raises the question for the IRS: should it be providing relief more often for disasters and emergencies not identified for Individual Assistance, similar to how it did for the COVID-19 disaster?

Remember, you must submit comments by March 15, 2021.