With blazing wildfires, searing heat, strong hurricanes, and a global pandemic, 2020 can be safely described as having an active disaster season. Reconstructing lost records and filling tax returns may not be at the top of most people’s to-do lists in the wake of such events. Nevertheless, both are critical for a number of reasons, including reimbursement from an insurance company, obtaining federal assistance, and reporting losses on a tax return.
- After a natural disaster, it’s critical to reconstruct lost records for reimbursement from an insurance company, obtain federal assistance, and report losses on a tax return.
- The IRS generally allows for late filing of tax returns as well as late payment of taxes for those in affected areas.
- States usually fall in line with federal extensions in the wake of disaster.
Be Aware of Postponed Federal Tax Deadlines
Here’s the latest info from the Internal Revenue Service (IRS) on getting more time to file certain returns and make certain payments.
Victims of Hurricane Sally, which began on Sept. 14, are being granted a postponement to file various individual and business tax returns and make tax payments. This tax relief gives affected individuals and businesses until Jan. 15, 2021, to file returns and pay any taxes that were originally due during this period. This means individuals who had a valid extension to file their 2019 return due to run out on Oct. 15, 2020, will now have until Jan. 15, 2021, to file. Note, however, that because tax payments related to these 2019 returns were due on July 15, 2020, those payments are not eligible for this relief, according to the IRS.
Quarterly estimated income tax payments due on Sept. 15 and the quarterly payroll and excise tax returns normally due on Nov. 2 also fall under the January deadline. Tax-exempt organizations that operate on a calendar-year basis and had a valid extension due to run out on Nov. 16 may make use of the new deadline, and businesses with extensions also have the additional time including, among others, calendar-year corporations whose 2019 extensions run out on Oct. 15.
The IRS disaster relief page has details on other returns, payments, and tax-related actions that qualify for the additional time.
What About the States?
States usually fall in line with federal extensions in the wake of disasters, “especially if the disaster is in that particular state,” says David A. Shuster, principal and director of tax controversy services at the Manhattan-based accounting firm Friedman. However, he warns, “a taxpayer located in a disaster state but [with] a filing obligation in another state might find that such other state has granted no general relief for taxpayers located in the disaster state.”
According to Shuster, most states typically grant relief from penalties relating to a missed deadline if there’s reasonable cause for missing that deadline, and a disaster is usually considered a reasonable cause. “Procedurally, some states might require a notation on the delinquent filing, or that an explanation accompany that filing, indicating that its delinquency is attributable to some disaster,” he adds. “In other cases the taxpayer should just make the delinquent filing and then respond to any penalty notice with a reasonable cause explanation.”
Assembling and Re-Creating Records
More time consuming and complicated than obtaining an extension on filing taxes is reconstructing records after a disaster. People who are the victims of a natural disaster need to gather the documentation for real property, personal property, and vehicles. Businesses must create a list of lost inventories. It’s all necessary for several reasons, including insurance reimbursement and taxes. Most important, records can help people prove their disaster-related losses. Accurately estimated losses can generate greater recovery assistance, such as loans or grants.
The primary disasters in question are fires, floods, tornadoes, and hurricanes, due to the severe loss of life and property they can cause, says Timothy P. Speiss, a CPA at accounting firm EisnerAmper and co-chair of Personal Wealth Advisors Practice. “Power outages are becoming more common and severe, as are health emergencies,” he adds.
“Fire is probably the worst, because documents could end up being permanently destroyed,” says Shuster. “By contrast, a flood might merely ruin documents, but they might be salvageable to some extent.”
Fires, floods, tornadoes, and hurricanes are the primary disasters. Because documents can end up permanently destroyed, fire is probably the most serious.
What to Know About Records and Where to Get Them
Recent records are generally easier to replace than older ones, says Shuster, because the issuers are likely to have their own record-retention policies. Many people think anything older than seven or eight years can be discarded, he says, but warns that “such docs shouldn’t be discarded if they relate to cost basis for property that has not yet been sold, or the statute of limitations on assessment for a return covering the sale has not yet expired.” Here are some places to go looking.
IRS Get Transcript Service
The Get Transcript Service on the IRS site allows individual taxpayers to retrieve their own transcripts by mail or online. There is no charge. You can also call the automated phone transcript service of the IRS at 800-908-9946 to order a tax return or tax account transcript to be sent by mail.
Financial Institutions and Involved Parties
People can gather past financial statements from their credit card company or bank. Some records may be available online if you have access to an online account. People can also contact their bank to get paper copies of these statements.
“For any documents related to property, homeowners can contact the title company, escrow company, or bank that handled the purchase of their home or other property,” says Speiss. “For inherited property, taxpayers can check court records for probate values. If a trust or estate existed, taxpayers can contact the attorney who handled the trust.” When no other records are available, people should check the county assessor’s office for old records that might address the value of the property.
Contractors and Witnesses
Some records are more commonly overlooked, Shuster says, such as “those bearing on home improvements—contractor invoices, contracts, and proofs of payment for such improvements.” If you’ve made home improvements, Speiss recommends getting in touch with the contractors who did the work. “Ask for statements to verify the work and cost,” he said. Homeowners can also get written descriptions from friends and relatives who saw the house before and after any improvements.
Real property, also called “real estate,” is land plus anything built on, growing on, or attached to said land, says Speiss. “Contact the title company, escrow company, or bank that handled the purchase of the home to get copies of appropriate documents,” he continues. “Real estate brokers may also be able to help.” Other strategies include:
- Use the current property tax statement for floor area ratios if possible. If they are not available, owners can usually get copies from the county assessor’s office.
- Establish a basis or fair market value of the home by reviewing comparable sales within the same neighborhood. This information can be found by contacting an appraisal company or visiting a website that provides home valuations.
- Check with the mortgage company for copies of appraisals or other information it may have about cost or fair market value in the area.
- Contact insurance companies that issued coverage for the related documents.
- Review insurance policies, as they usually list the value of a building, establishing a base figure for replacement value insurance.
If improvements were made to the home, reach out to the contractors who did the work to see if records are available. “If possible, get statements from the contractors verifying their work and cost,” says Speiss. Get written accounts from friends and relatives who saw the house before and after any improvements. See if any of them have photos taken at get-togethers.
If there is a home improvement loan, get paperwork from the institution that issued the loan. The amount of the loan may help establish the cost of the improvements. If no other records are available, check the county assessor’s office for old records that might address the value of the property.
“It can be difficult to reconstruct records showing the fair market value of some types of personal property,” says Speiss, who recommends taking the following steps when cataloguing lost items and their values:
- Look on mobile phones for pictures taken in the home that might show the damaged property in the background before the disaster.
- Check websites that can help establish the cost and fair market value of lost items.
- Support the valuation with photographs, videos, canceled checks, receipts, or other evidence.
- Contact the credit card company or bank for past statements if items were purchased using a credit or debit card. Credit card companies and banks often provide access to these statements online.
“If there are no photos or videos of the property, a simple method to help remember what items were lost is to sketch pictures of each room that was impacted,” says Speiss. “These do not have to be professionally drawn, just functional.”
- Draw a furniture floor plan for every room showing where each piece was placed. Include drawers, dressers, and shelves.
- Sketch pictures of the room looking toward any shelves or tables and show their contents.
- Also sketch less prominent aspects of the home, such as garages, attics, closets, basements, and items hanging on walls.
Several resources can help determine the current fair market value of most cars on the road. These resources are all available online and at most libraries.
- Kelley Blue Book is a vehicle valuation and automotive research company.
- The National Automobile Dealers Association is a trade organization representing franchised new car and truck dealerships.
- Edmunds is an online resource for automotive information.
“Additionally, call the dealer where the car was purchased and ask for a copy of the contract,” says Speiss. “If this is not available, give the dealer all the facts and details and ask for a comparable price figure. If making payments on the car, check with the lien holder.”
The Bottom Line
In the wake of a natural disaster, assembling paperwork and filing taxes are not likely to be among your initial impulses. Nevertheless, in order to recover as completely as possible from the damage, you need to be documenting its extent and cost in order to gain federal and state assistance. There are a variety of ways to reconstruct lost documentation so that all is, indeed, not lost. Take advantage of them to the fullest extent possible.