Postponed Tax Deadlines

The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by a terrorist attack. The tax deadlines the IRS may postpone include those for filing income and employment tax returns, paying income and employment taxes, and making contributions to a traditional IRA or Roth IRA.

If any tax deadline is postponed, the IRS will publicize the postponement in the affected area and publish a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin (IRB).

Affected taxpayers.   If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement.

• Any individual whose main home is located in a covered area (defined later).
• Any business entity or sole proprietor whose principal place of business is located in a covered area.
• Any individual, business entity, or sole proprietor whose records needed to meet a postponed deadline are maintained in a covered area. The main home or principal place of business does not have to be located in the covered area.
• Any estate or trust whose tax records necessary to meet a postponed tax deadline are maintained in a covered area.
• Any individual who is a relief worker affiliated with a recognized government or philanthropic organization and who is assisting in a covered area.
• The spouse on a joint return with a taxpayer who is eligible for postponements.
• Any other person determined by the IRS to be affected by a terrorist attack.

Covered area.   This is an area in which a terrorist attack took place and in which the IRS has decided to postpone tax deadlines for up to 1 year.

Abatement of interest.   The IRS may abate (forgive) the interest on any underpaid income tax for the length of any postponement.

Disaster Area Losses

If your property was damaged or destroyed as a result of the September 11 attacks, you can choose to deduct your disaster loss on your 2000 return (or amended return) rather than on your 2001 return.

You must make this choice to deduct your loss on your 2000 return by the later of the following dates.

• The due date (without extensions) for filing your 2001 income tax return (April 15, 2002, if you are a calendar year taxpayer).
• The due date (with extensions) for the 2000 return.

For more information about disaster area losses, see Publication 547.

Estate Tax Reduction

The federal estate tax is reduced for taxable estates of individuals who died as a result of the Oklahoma City attack, the September 11 attacks, and the anthrax attacks. The estate tax is computed using a new rate schedule on page 25 of the November 2001 revision of the instructions for Form 706. The estate tax is reduced by credits against the estate tax, including the unified credit and the state death tax credit. These credits may reduce or eliminate the estate tax due.

A special rule extends until January 22, 2003, the period of time allowed to file a claim for a refund of estate taxes that have been paid.

Recovery from the September 11th Victim Compensation Fund.   The value of claims for a decedent's pain and suffering is normally included in the gross estate. However, if the estate chooses to seek recovery from this fund, the IRS has determined that, in view of the unique circumstances of this situation and the high likelihood that such claims will be valued at a nominal or zero amount, the claims will be valued at zero for estate tax purposes. Thus, there are no federal estate tax consequences if an estate or beneficiary receives a recovery from this fund.

Which estates must file a return.   For decedents dying in 2001, Form 706 must be filed by the executor for the estate of every U.S. citizen or resident whose gross estate, plus adjusted taxable gifts and specific exemption, is more than $675,000. Form 706 must be filed within 9 months after the date of decedent's death unless you receive an extension of time to file. Use Form 4768, Application for Extension of Time To File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes, to apply for an extension.

Where to file.   Returns on which the new rate schedule is used should be sent to the following address, which was not available when Form 706 went to print.

Internal Revenue Service
E & G Department/Stop 824T
201 W. Rivercenter Blvd.
Covington, KY 41011

More information.   For more information on the federal estate tax, see the instructions for Form 706.

Structured Settlement Factoring Transactions

A person who acquires payment rights in a structured settlement arrangement after February 21, 2002, may be subject to a 40% excise tax unless the transfer of the payment rights was approved in advance in a qualified order. The excise tax is figured on the excess of the undiscounted amount of the payments being acquired over the total amount actually paid to acquire them. However, this tax will not apply to transactions entered into from February 22, 2002, to July 1, 2002, if certain requirements are met. For information about these requirements, see Internal Revenue Code section 5891.

Worksheet B Illustrated. Figuring the Tax To Be Forgiven

			(A) First Eligible Year (1994 or 2000)	(B) Second Eligible Year (1995 or 2001)	(C) Third Eligible Year (1996 or 2002)
1	Enter the years eligible for forgiveness.	1	2000	2001
2	Enter the decedent's taxable income. Figure taxable income as if a separate return had been filed. See the instructions.	2	$17,259	$14,295
3	Enter the decedent's total tax. See the instructions.	3	6,123	5,250
4	Enter the total, if any, of the decedent's taxes not eligible for forgiveness. See the instructions.	4	3,532	3,109
5	Subtract line 4 from line 3.	5	2,591	2,141
6	Enter the surviving spouse's taxable income. Figure taxable income as if a separate return had been filed. See the instructions for line 2.	6	29,025	29,850
7	Enter the surviving spouse's total tax. See the instructions.	7	5,277	5,391
8	Enter the total, if any, of the surviving spouse's taxes listed in the instructions for line 4.	8	0	0
9	Subtract line 8 from line 7.	9	5,277	5,391
10	Add lines 5 and 9.	10	7,868	7,532
11	Enter the total tax from the joint return. See Table 1 on page 5 for the line number for years before 2002.	11	10,789	9,728
12	Add lines 4 and 8.	12	3,532	3,109
13	Subtract line 12 from line 11.	13	7,257	6,619
14	Divide line 5 by line 10. Enter the result as a decimal.	14	.329	.284
15	Tax to be forgiven. Multiply line 13 by line 14 and enter the result.	15	$2,388	$1,880
Note. If the total of columns (A), (B), and (C) of line 15 (including any amounts shown on line 5 of Worksheet A) is less than $10,000, also complete Worksheet C. Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. If filing Form 1040X for an eligible year, enter the amount from line 15 above on Form 1040X in column B of line 10 as a decrease in tax. The IRS will determine the amount to be refunded.

Illustrated Worksheet B. Figuring the Tax To Be Forgiven (For Decedents Who Filed a Joint Return)

Illustrated Worksheets B and C

A wife lost her husband in the September 11 attack on the World Trade Center. They filed a joint return for 2000 and the wife chose to file a joint return as a surviving spouse for 2001. The returns for 2000 and 2001 showed the following income, deductions, and tax liabilities.

After the husband died, his estate received income of $4,000. Of that amount, $1,000 is net profit from Schedule C received before the end of 2001. This net profit is exempt from income tax as explained earlier under Income received after date of death. The wife files Form 1041 because the gross income of the estate for the tax year ($3,000) is $600 or more.

To determine how much of the husband's tax liability for 2000 and 2001 is to be forgiven, the wife completes Worksheet B. She also completes Worksheet C because the forgiven tax liabilities for 2000 and 2001 (line 15 of Worksheet B) total less than $10,000.

To claim tax relief for 2000, the wife files Form 1040X and attaches a copy of Worksheet B. To claim tax relief for 2001, she files Form 1040 and attaches copies of Worksheets B and C.

	2000	2001
Wages (wife)	$35,000	$36,000
Net profit from Schedule C, Profit or Loss From Business (husband)	25,000	22,000
Interest income (joint account)	1,000	1,100
Deduction for ½ of self-employment tax (husband)	(1,766)	(1,555)
Standard deduction	(7,350)	(7,600)
Personal exemptions (2)	(5,600)	(5,800)
Taxable income	$46,284	$44,145
Joint income tax liability	$7,257	$6,619
Plus: Self-employment tax (husband)	3,532	3,109
Total tax liability	$10,789	$9,728

Facts for Illustrated Worksheets

	2000	2001
Wages (wife)	$35,000	$36,000
Net profit from Schedule C, Profit or Loss From Business (husband)	25,000	22,000
Interest income (joint account)	1,000	1,100
Deduction for ½ of self-employment tax (husband)	(1,766)	(1,555)
Standard deduction	(7,350)	(7,600)
Personal exemptions (2)	(5,600)	(5,800)
Taxable income	$46,284	$44,145
Joint income tax liability	$7,257	$6,619
Plus: Self-employment tax (husband)	3,532	3,109
Total tax liability	$10,789	$9,728

Worksheet C Illustrated. Amount Treated as Tax Payment for Decedent's Last Tax Year

1	Minimum relief amount. Note: Before completing lines 2-9, see Instructions for lines 2-9 of Worksheet C.			1	$10,000
2	Enter the taxable income from line 22 (Form 1041)	2	2,400
3	Enter the distribution deduction from line 18 (Form 1041) .	3	0
4	Add lines 2 and 3.	4	2,400
5	Enter exempt income received after death minus expenses allocable to exempt income. (See Income received after date of death on page 5.)	5	1,000
6	Add lines 4 and 5.	6	3,400
7	Figure the tax on line 6 using Schedule G (Form 1041).	7	710
8	Figure the tax on line 4 using Schedule G (Form 1041).	8	435
9	Tax on exempt income. Subtract line 8 from line 7.	9	275
10	Enter the total of columns (A)-(C) from line 5 of Worksheet A or line 15 of Worksheet B. If the decedent was not required to file tax returns for the eligible tax years, enter -0-.	10	4,268
11	Add lines 9 and 10.			11	$4,543
12	Additional payment allowed. If line 11 is $10,000 or more, enter -0- and stop here. No additional amount is allowed as a tax payment. Otherwise, subtract line 11 from line 1 and enter the result.			12	$5,457
Note. The amount on line 12 is allowed as a tax payment for the decedent's last tax year (usually 1995 or 2001). Attach the computation of the additional payment allowed or a copy of this worksheet to the original or amended income tax return for the decedent's last tax year. If filing Form 1040, include the amount from line 12 above on the Other payments line of the form. Write "Sec. 692(d)(2) Payment" and the amount to the right of the entry space. Also indicate whether a Form 1041 is being filed for the decedent's estate. If filing Form 1040X, include the amount from line 12 above on Form 1040X on line 15, columns (B) and (C). Write Sec. 692(d)(2) Payment on the dotted line to the left of the entry space.

Illustrated Worksheet C. Amount Treated as Tax Payment for Decendent's Last Tax Year

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