SECTION 165 (i) DISASTER DECLARATION ?

[Lee B]

Copied from Accounting Today:

"A declared disaster

Under Code Section 165(i), if a taxpayer has a loss in a disaster area attributable to a federally declared disaster, the taxpayer may elect to treat the loss as occurring in the immediately preceding taxable year. For the first time in U.S. history, the entire nation was declared a disaster zone on March 13, 2020.

“The coronavirus pandemic is nationwide and not geographically specific,” indicated Bill Smith, managing director in the national tax office of Top 100 Firm CBIZ MHM. “For both individuals and businesses, this is an opportunity to reduce their 2019 amount due.”

“For example, a taxpayer owns 20 restaurant franchises, and gets a shut-down order on March 20. The taxpayer might suffer several hundred thousand dollars in loss due to food spoilage,” he explained. “Or a taxpayer owned stock in an industry hit by the pandemic, and decides to sell and take a loss. It shouldn’t matter whether the sale is before the declared date of the disaster — a disaster is always declared after the damage is done."

Has anyone ever used this before. How would you use this to reduce 2019 taxes?

[BulldogTom]

How would you quantify the loss?   In and earthquake for fire, there is a loss that can be calculated (cost to replace less insurance reimbursement).   You can't take a loss for profits not earned.   You can't take a loss for wages lost.   So what could you use as the basis for the amount of loss from the virus?

I think it is a very interesting question, but in reality, I don't know that there is a practical way to get to an amount of loss.

Tom
Modesto, CA

[Lee B]

My largest client is a modest sized local restaurant chain. They had to close one of their restaurants for 2 weeks because one of their employees said she had tested positive

for Covid-19. So they ended up throwing out some of the food inventory at this location. They are a C Corporation and their 2019 return is already filed and taxes paid.

So would you amend the 2019 tax returns, deducting the cost of the food thrown out, asking for a refund? (About 10 days after they had closed this location, the employee

received a letter from the Health Dept saying that her test had come back negative?)

[BulldogTom]

I think you could make that argument.   But is it really worth it?   What was the loss?  How much will you charge for the return and how long until the service processes it?  Is that worth it when they will get the same deduction when they file this year's return in 2021?

I ***think*** you have a position to take if you want to go down that road.  

Tom
Modesto, CA

[Lee B]

They only threw out $ 4,000 or $ 5,000 worth of food, so it's not worth it.

However some of the agricultural losses both for the farmers and the processors have been huge.

I have a client who has a bicycle store next to the U of O Campus.

With no students on campus, her business is totally devastated. Her losses are all lost sales.

I doubt that her shop will ever reopen.

[DANRVAN]

4 hours ago, cbslee said:

 

So would you amend the 2019 tax returns, deducting the cost of the food thrown out, asking for a refund?

I believe that is the route you would go.  You would reduce the 2020 beginning inventory to prevent a double deduction per rev rul 77-94.

Your post brings up an important consideration for 2019 tax returns that have not yet been filed.

[DANRVAN]

2 hours ago, BulldogTom said:

  How much will you charge for the return and how long until the service processes it

That is a big consideration.  There might be such a back log that an e-filed 2020 return might get processed sooner!

[DANRVAN]

1 hour ago, cbslee said:

I doubt that her shop will ever reopen.

If she eventually sales or closes the business, the loss in value could be a 165(i) loss.