Subject:           Hurricane Charley: Tax Implications

Our thoughts and prayers are with the individuals, families and friends who have suffered at the hands of the most recent hurricane.

As your tax professional, I am in a position to offer hope and professional guidance on the tax implications of the most recent disasters.

Affected Taxpayers Have Choices

A casualty loss in a federally declared disaster areas can be deducted in either the year the loss occurred or the year preceding the loss. This is a very special and favorable provision of the tax code.

Taxpayers should consider the benefits of filing for the year that gives the greater advantage. A loss in 2004 can be deducted on a 2003 amended tax return. This provision allows affected taxpayers to qualify for a tax refund at a much earlier date and time. As your tax professional, I can evaluate with you the pros and cons of filing an amended tax return.

A statement must be included with the amended return that specifies the date(s) of the disaster and the city, town, county and state where the damage or destroyed property was located. Indicate that the loss is being claimed in the year preceding the disaster.

Special rules apply to homes damaged or destroyed in an area declared by the President to warrant federal assistance as a result of a disaster.

Renters receiving insurance proceeds also qualify for relief under these rules.

No gain is recognized from insurance proceeds for unscheduled personal property (items that are not specifically listed as covered under an insurance policy) that was part of the contents of the home.

Gross income does not include any amount received by an individual as a “qualified disaster” relief payment. The government, a charity or an employer can make the payments. Qualified payments include amounts to reimburse or pay any reasonable and necessary expenses for:

1. Personal, family living or funeral expenses

2. Repair of personal residence or its contents

3. Temporary housing

4. Transportation

5. Medical

IRS Responds to August 2004 Storms

On August 16, 2004, the IRS announced (IR 2004-108) that special tax relief was available for taxpayers in the Presidential Disaster Area that was struck by Tropical Storm Bonnie and Hurricane Charley beginning August 11, 2004. Taxpayers in 25 Florida counties generally will have until October 15, 2004 to file tax returns and submit tax payments. The IRS will abate interest and any late filing or late payment penalties that would apply.

The relief is extended to those individuals and businesses that are located or have records located in those areas. Relief is also extended to relief workers.

The special extension relief does not apply to information returns or employment and excise tax deposits. However, the IRS may also abate those related penalties where the taxpayer can establish “reasonable cause.”

Please contact us if we can assist you on this or any other tax matter.