The IRS has released a notice informing eligible homeowners, who received federal grants for damages to or destruction of homes caused by Hurricanes Katrina, Rita or Wilma, how to file an amended return to take advantage of section 3082(a) of the Housing and Economic Recover Act of 2008 (P.L. 110-289). The new provision allows eligible taxpayers to elect to file an amended return to reduce previously taken casualty losses in a later year.
Taxpayers should use Form 1040X, Amended U.S. Individual Income Tax Return, to amend prior-year returns to reduce the casualty loss deduction by the amount of the grant. The words, "Hurricane Grant Relief" in dark, bold letters should be written at the top of Form 1040X, which should be mailed to: Internal Revenue Service Center, Austin, TX 73301-0255. Amended returns cannot be filed electronically.
To qualify for this relief, amended returns must be filed by July 30, 2009, together with the proof of amount of any hurricane relief grant received and a completed Form 2848, Power of Attorney and Declaration of Representative, if a taxpayer designates a representative. The balance due on the amended return must be paid within one year of the timely filing of the amended return to avoid interest and penalties. Payments made subsequent to the filing of the amended return should clearly designate that the payment is to be applied to reduce the balance due on the amended return.
Taxpayers who have already filed an amended return must send a copy of the previously filed Form 1040X, or submit Form 843, to the IRS at the same address above. Either form should include the taxpayer's contact information and a power of attorney, if applicable. Copies of the original return for the year of the casualty loss deduction and any amended returns for that year filed prior to the publication of this notice and copies of the original and amended returns for the year of receipt of the grant if any portion of the grant was previously reported as income in the year of receipt must also be submitted. These documents must be sent by the later of the due date for the return for the year in which the hurricane relief was granted, as extended, or July 30, 2009.
Taxpayers are not required to amend a prior year's return and may, instead, include the hurricane relief grants in gross income in the year the grant was received up to the amount of tax reduced by the casualty loss deduction pursuant to
Reg. §1.165-1(d)(2)(iii). The IRS cautioned that, although filing an amended return may be a good option for many, it is not necessarily the right choice for all affected taxpayers. The IRS encourages affected taxpayers and their representatives to consider carefully the option that is best under their particular circumstances.
IR-2008-115,
2008FED ¶46,612
Notice 2008-95, 2008FED ¶46,613
Other References:
Code Sec. 165
CCH Reference - 2008FED ¶10,005.073
CCH Reference - 2008FED ¶10,005.16
Tax Research Consultant
CCH Reference - TRC INDIV: 54,302