Disaster relief does not suspend penalties on tax already overdue

Plain-English summary

Chief Counsel considered whether disaster relief under IRC § 7508A suspended failure-to-pay penalties and interest on tax that was due before the disaster postponement period began. The advice concluded that it did not, because § 7508A postpones only an act whose due date falls within the relief period. Taxpayers with a valid extension of time to pay could receive a different result if their payment deadline fell within that period. Other affected taxpayers could still request penalty abatement based on reasonable cause and their individual facts.

Ruling snapshot

• Question: Does disaster postponement relief stop penalties and interest when the tax payment was already overdue before the relief period?
• Outcome: Advice given. No, unless an extension placed the payment due date within the postponement period; reasonable-cause abatement may still be available.
• Key authorities: IRC §§ 6651(a)(2), 7508A; Treas. Reg. § 301.7508A-1

Full text (IRS public release)

ID: CCA_2017060207392454
UILC: 7508A.00-00, 6651.00-00

Number: 201723023
Release Date: 6/9/2017
From:
Sent: Friday, June 02, 2017 7:39:24 AM
To:
Cc:
Bcc:
Subject: RE: Disaster Tax Relief - advice from

Thanks for your patience while I looked into this further. This isn’t the first time similar
questions about disaster relief and abatement of penalties/interest have arisen. In May
of 2016, I worked a similar question involving disaster relief granted after severe
storms/tornadoes/flooding hit parts of Texas. I will give the same advice in this instance
as I gave back then.

  1) Taxpayers who didn’t pay before the due date don’t get the benefit of IRC § 7508A with
     regard to the failure to pay penalties and interest that began accruing before the
     disaster hit. Under Treas. Reg. § 301.7508A-1(b)(2), an affected taxpayer is eligible for
     postponement of time to perform an act until the last day of the relief period if “the
     affected taxpayer is required to perform [the] tax-related act by a due date that falls
     within the postponement period.” The tax-related act at issue here (the paying of tax)
     falls outside the postponement period – the postponement period began August 11,
     2016, and ended January 17, 2017. Payment of tax would have been due April 15, 2016,
     which was before the postponement period began. So in the fact pattern Cong. Graves’
     office is asking us to consider, the penalties/interest began to accrue before the
     postponement period began. Consequently, taxpayers do not get a suspension of
     penalties/interest between August 11, 2016, and January 17, 2017. (If any of the
     affected taxpayers had valid extensions of time to pay, then the tax would have been
     due during the postponement period and the result would be different).

  2) Take a look at Example 6 of Treas. Reg. § 301.7508A-1(f). In the example, A is a calendar-
     year taxpayer who timely filed an extension to file on April 15, 2009 (extended due date
     to October 15, 2009), but did not receive an extension to pay under section 6661. A was
     an affected taxpayer in a covered disaster area occurring on September 30, 2009. The
     time period for taxpayers to perform time-sensitive acts falling on or after September
     30, 2009, and on or before December 2, 2009, was postponed to December 2, 2009. A’s
     return was timely filed if filed on or before December 2, 2009, because the extended
     due date for the return fell within the postponement period. However, the payment due
     date preceded the postponement period and A was subject to failure to pay penalties

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     and accrual of interest during the postponement period. Absent reasonable cause, A is
     subject to the failure to pay penalty for the entire postponement period under section
     6651(a)(2) and accrual of interest.

3) When explaining to Cong. Graves that relief from penalties and interest pursuant to IRC
   § 7508A is not available for his constituents, suggest instead that his constituents (or
   their representatives) should advocate for abatement based on reasonable cause due to
   the particular facts/circumstances in each case.

     As I indicated last year in my advice to

Please let me know if you have any questions. Thanks.

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