Due to the catastrophic damage caused by Hurricanes Harvey, Irma, and Maria, the IRS is providing relief to taxpayers affected by the storms in the form of extended filing, payment, and other deadlines. This relief has been expanded to all parts of Florida, Georgia, Puerto Rico, the Virgin Islands, and certain counties in Texas. See https://www.irs.gov/newsroom/tax-relief-in-disaster-situations where you can find the relevant IRS guidance on the hurricane relief efforts.
When discussing the requirement to file IRS Form 8886 imposed by Notice 2017-10 (as amended by Notice 2017-29), there are two timeframes with different filing requirements:
- Deductions claimed on tax returns for the 2010 through 2015 tax years, which remained subject to assessment as of December 23, 2016. These taxpayers are only required to file IRS Form 8886 with OTSA by Oct. 2, 2017, and
- Deductions claimed on a 2016 tax return. These taxpayers are required to attach IRS Form 8886 to their timely filed 2016 tax return (including extensions) and file IRS Form 8886 with OTSA at the same time they attach it to their tax returns.
The authority to extend such deadlines in a disaster zone is provided by Code § 7508A and Treasury regulation § 301.7508A-1. “Affected taxpayers” are granted relief during the “postponement period.”
The postponement periods for Hurricanes Harvey, Irma, and Maria seem to cover both the Oct. 2, 2017 and Oct. 15, 2017 (assuming fully extended 2016 return) filing deadlines for IRS Forms 8886. However, as discussed below, the IRS is taking the position that the extension applies only to the requirement to file IRS Form 8886 for deductions claimed during the 2016 tax year. This means that the October 2, 2017 deadline applies for all individuals regardless of the hurricane disaster relief.
Code § 7508A extends the deadline to among other things, file most returns; pay most taxes, penalties, or interest; make contributions to qualified plans; file petitions; and claim refunds. The “catch-all” subsection extends the deadline for “any other act required or permitted under the internal revenue laws specified by the Secretary.” Code §§ 7508A(a)(1); 7508(a)(1)(K). The filing of IRS Form 8886 appears to be an “act required …by the Secretary.” See Notice 2017-10.
The regulation has a corresponding “catch-all” subsection, which similarly extends the deadline for “[a]ny other act specified in a revenue ruling, revenue procedure, notice, announcement, news release, or other guidance published in the Internal Revenue Bulletin.” Treas. Reg. § 301.7508A-1(c)(1)(vii). Filing Form 8886 appears to be an act specifically required of taxpayers pursuant to an IRS Notice, so it appears to be a deadline that should be extended for all affected taxpayers during the postponement period.
However, our contacts at the IRS have indicated that the IRS interprets the extension narrowly, and as only applying to affected taxpayers who claimed deductions during the 2016 tax year. According to the IRS, the hurricane disaster relief does not extend the October 2, 2017 deadline to file IRS Form 8886 for deductions claimed during the 2010 through 2015 tax years. The IRS is taking the position that the “other act” language does not apply the requirement to file IRS Form 8886.
We believe that the correct interpretation of the Code and regulation is that the extension applies to the filing of IRS Form 8886 for all tax years. The Code indicates that the extension applies to “any other act required …by the Secretary.” IRC §§ 7508(b); 7508A(a)(1)(K). The requirement to file IRS Form 8886 seems to fit the definition of an act required by the secretary.
TO BE CLEAR, even though we believe the IRS is misinterpreting the regulation, we strongly suggest that all participants file IRS Form 8886 by October 2, 2017 for deductions claimed during the 2010 through 2015 tax years (assuming those years were open to assessment as of Dec. 23, 2016).
The IRS has broad and sweeping authority with respect to listed transaction penalties. As will be discussed in a subsequent post soon to be released, the Code indicates that once assessed the IRS cannot rescind a listed transaction penalty, and that no court can review a determination made by the IRS with respect to a listed transaction penalty. In theory, this could permit the IRS to effectively assess dubious penalties with respect to listed transactions.