IRS Helps Charities Aid Flood Victims

WASHINGTON - The Internal Revenue Service is assisting in Midwest flood relief efforts and is making it easier for charities to aid victims. It will grant tax-exempt status more quickly for organizations formed to help flood victims and has relaxed the usual restrictions on such agencies aiding their own employees.

New flood relief organizations will get expedited service by putting the words "FLOOD DISASTER" at the top of their Form 1023, "Application for Recognition of Tax Exemption." The free IRS Publication 557, "Tax Exempt Status for Your Organization," has additional information. The application form and the publication may be ordered by calling 1-800-TAX-FORM.

IRS assistors are working at Federal Emergency Management Agency (FEMA) sites, helping flood victims get tax information to claim casualty losses and file for loans. Local IRS offices in the Midwest have announced that taxpayers who are unable to file returns or make payments on their federal tax obligations because of the flood disaster will not be penalized. In addition, the IRS has curtailed normal collection and examination actions for affected taxpayers in the flooded areas.

As it did last year after Hurricanes Andrew and Iniki, the IRS is allowing tax-exempt organizations to make appropriate, good-faith relief efforts for any victims of the Midwest floods, even if the aid recipients are their employees or employees of related organizations. Normally, charities are subject to legal restrictions in their dealings with employees, and violations of these restrictions could result in tax consequences.

For example, in accordance with this relief, a company-funded foundation that is an exempt organization providing relief to flood victims may also extend relief to its own employees who are victims of the flood. However, the foundation cannot limit its help to the company's executives, nor give aid to all employees in the area whether or not they suffered actual flood damage. This would not be considered a good-faith relief effort, and the IRS could assess penalties against the foundation. Notice 93-41, to be published in Internal Revenue Bulletin 1993-27, dated Aug. 16, 1993, has specific guidance on the relief provisions for charities.

In the past, the IRS has helped taxpayers who suffered disaster losses request copies of their prior year returns, which could take several weeks to be received. Now the IRS has much of this data on-line at its local offices and is faxing computer printouts of taxpayer account data to its representatives at FEMA sites. This means that flood victims can more quickly get income verification to apply for Small Business Administration loans or to prepare amended tax returns to claim their casualty losses, resulting in faster refunds. Federal disaster area victims have the option of claiming losses on the previous year's tax return or waiting until they file the current year's return.

Three IRS publications explain the tax implications of different disaster situations: Publication 225, "Farmer's Tax Guide," Publication 334, "Tax Guide for Small Business," and Publication 547, "Nonbusiness Disasters, Casualties and Thefts." All are available by calling 1-800-TAX-FORM.

Taxpayers in flooded areas of Illinois, Iowa, Minnesota, Missouri, Nebraska, South Dakota and Wisconsin have until October 15 to file certain federal tax returns or pay federal taxes that would have been due on or after June 30 and before October 15, 1993. However, corporations with extensions for income tax returns originally due March 15 must file these returns by September 15, the maximum extension the law allows.

The law does not permit the waiver of interest, which must be charged from the original due date until the taxes are paid. Likewise, the due dates for depositing withheld income, social security or excise taxes and for filing employment tax returns cannot be extended. However, the IRS will abate the late deposit penalty for taxes deposited by September 15 and will abate the late filing penalty for returns filed by October 15, 1993.

Affected taxpayers should put the words "FLOOD DISASTER, COUNTY OF __________" in red at the top of any return relying on flood-related relief. The IRS will issue a more detailed technical description of this relief shortly.

The IRS will not start any new examinations of flood-affected taxpayers and those currently being examined will have extra time to respond to any requests for information. Those who receive notices that may already be in the mail should contact the IRS to obtain more time.

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