Exam: Hardship and Disasters

At the outset, uie reader should note that there is no uniform definition of hardship throughout the Code. [...]the term hardship is often preceded by a modifier that should be considered in determining whether the taxpayer's challenges meet the Code's modified definition. Federally declared disasters can be found on Federal Emergency Management Agency (FEMA) website, under Disaster Assistance.19 The IRS provides information about disasters and what relief is available to affected taxpayers.20 Frequently overlooked by Revenue Agents is that casualties, including those that are not federally declared disasters, can alleviate the substantiation burdens under Code Sec. 274 if the casualty event leads to the loss of the records required for substantiation.21 While the taxpayer need not comply with the strict substantiation rules for these travel and entertainment expenses, he or she must make a reasonable attempt to reconstruct those records.22 The taxpayer may also need to prove that the casualty event occurred and that it was not caused by the taxpayer.23 This exception does not assist taxpayers who do not maintain adequate books and records.24 B. Extension of Time to Pay The Secretary has the authority to extend the payment deadline for individual taxpayers based on a claim of undue hardship.25 To request an extension of time to pay the tax liability, taxpayers must file Form 1127, Application for Extension of Time for Payment of Tax Due to Undue Hardship. C. Other Extensions For taxpayers affected by a federally declared disaster or terrorist action, the Secretary may provide that for up to one year, the time limits for filing returns, paying tax, and filing Tax Court Petitions are disregarded.26 The Secretary may also stop the calculation of interest, penalties, additional amounts, or additions to tax27 and extend the taxpayer's ability to claim a credit or refund for up to one year.28 There is also a mandatory 60-day extension for taxpayers who live or work in the disaster area,29 reliefworkers,30 taxpayers whose necessary records are in the disaster area,31 visitors injured or killed in the disaster area,32 and the spouses of those people if they file joint returns.33 Tax professionals need to know these circumstances and whether their taxpayers are affected to make sure that they are applying the correct deadlines. "36 For example, the regulations state that the need to pay for the funeral of a family member would qualify but purchasing a television or