Sheehan & Company - Bulletin - Articles: Congress, the IRS and New York State Offer Some Relief for Victims and Others Affected by, the 9.11.01 Attacks

After the tragic events of September 11, 2001 unfolded, the U.S. Government and various State Governments scrambled to assemble legislation providing relief to affected taxpayers.

For Federal and New York purposes, affected taxpayers have been defined as any individual whose principal place of residence, or any business entity whose principal place of business, is located in the covered disaster area (which includes the New York counties of Bronx, Kings, New York (boroughs of Brooklyn and Manhattan), Queens, and Richmond or in Arlington County Virginia.) Other affected taxpayers include: any individual, or business, whose records necessary to meet a filing or paying deadline are maintained in the covered disaster area; any estate or trust that has tax records necessary to meet a filing or paying deadline in a covered disaster area; any spouse of an affected taxpayer, solely with regard to a joint return of the husband and wife; victims of the crash (including those on the plane and those on the ground) of the four commercial jet airplanes hijacked on September 11, 2001; all workers assisting in the relief activities in the covered disaster areas and in Pennsylvania; and taxpayers whose place of employment is located within the disaster area.

For Federal purposes, taxpayers who believe they are entitled to relief should mark "September 11, 2001 Terrorist Attack" in red on the top of their return or other documents submitted to the IRS.

For New York purposes, taxpayers who believe they are entitled to relief should mark "WTC" on the top center of the front page of any late filed return, extension, declaration of estimated tax, estimated tax voucher, or other document, and should include a brief explanation of the circumstances that affected the ability to meet the filing deadline. Following is a brief summary of some of the enacted and pending legislation.

IRS EXTENDS FILING & PAYMENT DEADLINES
Individuals that are affected taxpayers and that have extended the time for filing their tax year 2000 federal individual income tax return beyond September 10, 2001 will have a postponement to February 12, 2002 to file their tax returns. Although an extension of time to pay has not been granted (because tax amounts were generally due by April 16, 2001), the period of 120 days between September 11, 2001 and January 2, 2002, will be disregarded in the calculation of any failure to pay penalty.

Affected taxpayers other than individuals are granted both a 120 day postponement and a six month extension to file certain federal tax returns otherwise due after September 11, 2001, and on or before November 30, 2001, and to pay the tax shown or required to be shown on those tax returns. Additionally, affected calendar year corporations and other entities that are currently on a six month extension of time to file their federal tax return that expires between September 11, 2001 and November 30, 2001, will have an additional 120 days to file their returns. For example, the tax return for a calendar year corporation that has been extended to September 17, 2001 will now be due January 15, 2002.

The due date of any estimated tax payment for tax year 2001 originally due on or after September 11, 2001, and before January 15, 2002, for affected taxpayers is postponed to January 15, 2002. This applies to individuals, corporations, estates and trusts.

Taxpayers who have difficultly meeting their federal tax obligations because of disruption in the transportation and delivery of documents by mail or private delivery services resulting from the terrorist attack, and who do not otherwise qualify for relief as described above, will have until November 15, 2001 to file returns and make payments required to be made from September 11, 2001, through October 31, 2001.

The time for making federal tax deposits, for employment or excises taxes, has not been extended, however for deposits required to be made from September 11, 2001 through October 31, 2001 the addition to tax for failure to timely make the deposit will be waived if the deposit is made on or before November 15, 2001.

In addition, for six months the IRS will suspend many enforcement activities such as levies, seizures and summonses, for affected taxpayers.

NEW YORK EXTENDS FILING & PAYMENT DEADLINES
The New York State Commissioner of Taxation and Finance has postponed deadlines from September 11, 2001, through December 10, 2001. All deadlines for affected taxpayers for any type of filing or payment have been extended to December 10, 2001. Fiscal year taxpayers who have not previously filed all allowable requests for extensions may file its request for extension (and pay the tax due) on or before December 10, 2001. Extensions filed on or before December 10, 2001 will have the same effective date as if they had been filed on the original due date for that extension. The tax due on any return filed under such extension will not be subject to any late filing or late payment penalties or interest for the period September 11, 2001 to December 10, 2001.

UNITED STATES PENDING LEGISLATION
THE TERRORISM RELIEF ACT OF 2001
The Terrorism Relief Act of 2001 passed unanimously in the House of Representatives on September 13, 2001 and is also expected to pass in the Senate. The bill treats individuals who die as a result of wounds or injury which were incurred as a result of the terrorist attacks that occurred on September 11, 2001, in the same manner as if they were a military or civilian employee of the United States dying as a result of terrorist or military activity outside of the United States for purposes of Internal Revenue Code section 692(c) (relating to the income tax), and as a member of the Armed Forces of the United States in active service killed in action while serving in a combat zone or as a result of wounds, disease, or injury suffered while serving in a combat zone for purposes of Code section 2201 (relating to the estate tax). Consequently, these individuals (whether killed on the four airplanes or on the ground, whether as victims or in rescue or recovery operations) are eligible for the exemption from income tax and the reduction in the estate tax provided by these two provisions.

The exemption from income tax applies to the year of death as well as the tax year preceding the year of death. Individuals who are wounded or injured as a result of the September 11th events, and who die as a result of their wounds or injury in a later taxable year are eligible for exemption from income taxes for all the taxable years beginning with the year prior to the year of the wounds or injury and ending with the year of death.

The reduction in the estate tax applies to decedents dying on or after September 11, 2001 as a result of injuries sustained from the terrorist acts of September 11, 2001. In general, the Federal estate tax that would otherwise be imposed is replaced with a Federal estate tax equal to 125% of the maximum state death tax credit. Credits against tax, including the unified credit and the state death tax credit then apply to reduce (or eliminate) the amount of the estate tax payable. For decedents dying after December 31, 2004 the maximum state death tax credit is determined as in effect prior to its repeal by the Economic Growth and Tax Relief Reconciliation Act of 2001.