Retirement Plan Loans, Hardship Distributions to Hurricane Sandy Victims

WASHINGTON — As part of the administration’s efforts to bring all available resources to bear to support state and local partners impacted by Hurricane Sandy, the Internal Revenue Service today announced that 401(k)s and similar employer-sponsored retirement plans can make loans and hardship distributions to victims of Hurricane Sandy and members of their families.

401(k) plan participants, employees of public schools and tax-exempt organizations with 403(b) tax-sheltered annuities, and state and local government employees with 457(b) deferred-compensation plans may be eligible to take advantage of these streamlined loan procedures and liberalized hardship distribution rules. Though IRA participants are barred from taking out loans, they may be eligible to receive distributions under liberalized procedures.

Retirement plans can provide this relief to employees and certain members of their families who live or work in the disaster area. To qualify for this relief, hardship withdrawals must be made by Feb. 1, 2013.

The IRS is also relaxing procedural and administrative rules that normally apply to retirement plan loans and hardship distributions. As a result, eligible retirement plan participants will be able to access their money more quickly with a minimum of red tape. In addition, the six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply.

 

Retirement Plan Loans, Hardship Distributions to Hurricane Sandy Victims

This broad-based relief means that a retirement plan can allow a Sandy victim to take a hardship distribution or borrow up to the specified statutory limits from the victim’s retirement plan. It also means that a person who lives outside the disaster area can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent or other dependent who lived or worked in the disaster area.

Plans will be allowed to make loans or hardship distributions before the plan is formally amended to provide for such features. In addition, the plan can ignore the limits that normally apply to hardship distributions, thus allowing them, for example, to be used for food and shelter. If a plan requires certain documentation before a distribution is made, the plan can relax this requirement as described in the Announcement.

Ordinarily, retirement plan loan proceeds are tax-free if they are repaid over a period of five years or less.  Under current law, hardship distributions are generally taxable. Also,  a 10 percent early-withdrawal tax usually applies.

Further details are in Announcement 2012-44, posted today on IRS.gov.

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Housing Availability Expanded for Hurricane Sandy Victims

WASHINGTON — As part of the administration’s continued support for states and local partners impacted by Hurricane Sandy, the Treasury Department and the Internal Revenue Service today announced that they will waive low-income housing tax credit rules that prohibit owners of low-income housing from providing housing to victims of Hurricane Sandy who do not qualify as low-income. The action will expand the availability of housing for disaster victims and their families.

Because of the widespread devastation to housing caused by Hurricane Sandy, the Treasury Department and the IRS will temporarily suspend income limitation requirements and non-transient requirements for qualified low-income housing projects that provide housing to victims of Hurricane Sandy.

 

Housing Availability Expanded for Hurricane Sandy Victims

The President has declared that major disasters exist in Connecticut, New York and New Jersey, making federal funding available to affected individuals in designated counties through the Federal Emergency Management Agency (FEMA). Assistance can include grants for temporary housing and home repairs, low-cost loans to cover uninsured property losses, and other programs to help individuals and business owners recover from the effects of the disaster. FEMA has also approved Transitional Sheltering Assistance (TSA) in New York and New Jersey for eligible disaster survivors who have a continuing need for shelter because they are unable to return to their homes for an extended period of time. Individuals and business owners who sustained losses can apply for assistance from FEMA by calling 1-800-621-FEMA (3362) via mobile device atm.fema.gov, or online at http://apps.irs.gov/app/scripts/exit.jsp?dest=http://www.disasterassistance.gov/.

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IRS Waives Dyed Diesel Fuel Penalty Due to Hurricane Sandy

WASHINGTON — The Internal Revenue Service, in response to shortages of clear diesel fuel caused by Hurricane Sandy, will not impose the dyed diesel fuel penalty when dyed diesel fuel is sold for use or used on the highway.

 

This relief applies beginning Oct. 30, 2012 in New Jersey, New York, and Pennsylvania and will remain in effect through Nov. 20, 2012.

This dyed diesel fuel penalty relief is available to any person that sells or uses dyed fuel for highway use. In the case of the operator of the vehicle in which the dyed fuel is used, the relief is available only if the operator or the person selling the fuel pays the tax of 24.4 cents per gallon that is normally applied to diesel fuel for on-road use. The IRS will not impose penalties for failure to make semimonthly deposits of this tax. IRS Publication 510, Excise Taxes, has information on the proper method for reporting and paying the tax.

 

IRS Waives Dyed Diesel Fuel Penalty Due to Hurricane Sandy

Ordinarily, dyed diesel fuel is not taxed, because it is sold for uses exempt from excise tax, such as to farmers for farming purposes, for home heating use and to local governments for buses.

Finally, the Internal Revenue Service will not impose the tax penalty on a failure to meet the requirements of EPA highway diesel fuel sulfur content regulations if EPA has waived those requirements.

The IRS is closely monitoring the situation and will provide additional relief as needed.

IRS: Qualified Disaster Treatment of Payments to Victims of Hurricane Sandy

Washington – The Internal Revenue Service today alerted employers and other taxpayers that because Hurricane Sandy is designated as a qualified disaster for federal tax purposes,  qualified disaster relief payments made to individuals by their employer or any person can be excluded from those individuals’ taxable income.

 

IRS: Qualified Disaster Treatment of Payments to Victims of Hurricane Sandy

Qualified disaster relief payments include amounts to cover necessary personal, family, living or funeral expenses that were not covered by insurance. They also include expenses to repair or rehabilitate personal residences or repair or replace the contents to the extent that they were not covered by insurance. Again, these payments would not be included in the individual recipient’s gross income.

The IRS also announced that the designation of Hurricane Sandy as a qualified disaster means that employer-sponsored private foundations may provide disaster relief to employee-victims in areas affected by the hurricane without affecting their tax-exempt status.  Like all charitable organizations, employer-sponsored private foundations should follow the guidance in Publication 3833, Disaster Relief: Providing Assistance Through Charitable Organizations, in providing assistance to employees or their family members affected by Hurricane Sandy.

Related Item: Help for Victims of Hurricane Sandy

Taxpayers and Preparers Affected by Hurricane Sandy Granted Extra Time By IRS

Taxpayers and Preparers Affected by Hurricane Sandy Granted Extra Time By IRS; File and Pay by Nov. 7

WASHINGTON — The Internal Revenue Service today announced it is granting taxpayers and tax preparers affected by Hurricane Sandy until Nov. 7 to file returns and accompanying payments normally due today.

This Tax relief applies to taxpayers and tax preparers in an area affected by Hurricane Sandy or otherwise impacted by the storm that hit the Mid-Atlantic and Northeastern United States this week.

 

Taxpayers and Preparers Affected by Hurricane Sandy Granted Extra Time By IRS

This relief primarily applies to businesses whose payroll and excise tax returns and payments are normally due today. No action is required by the taxpayer; this relief is automatic. Regular federal tax deposits are due according to current rules. However, the IRS notes that if taxpayers or tax practitioners receive a penalty notice for this period, they can contact the IRS at the number on the notice to request penalty abatement due to reasonable cause on account of the storm.

IRS expects to grant additional filing and payment relief as qualifying disaster declarations are issued by the Federal Emergency Management Agency (FEMA). Details will be posted on the Tax Relief in Disaster Situations page on IRS.gov.