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IRS GRANTS FIRE VICTIMS EXTENSION

 IRS GRANTS FIRE VICTIMS EXTENSION
 SAN FRANCISCO, Dec. 12 /PRNewswire/ -- The Internal Revenue


Service today granted the victims of the Oakland/Berkeley fire storm a blanket extension on the deadline for reinvesting compensation for their fire losses. The IRS began mailing letters today to fire victims. IRS District Director Frank S. Miceli gives those who have already received insurance funds, more time to reinvest their compensation without being taxed on any gain. The letter is being sent to everyone registered with the Federal Emergency Management Agency (FEMA.)
 This automatic extension to reinvest expires on Dec. 31, 1994. That means residents of the fire area who are in the process of rebuilding their homes and replacing personal property (such as furnishings or possessions) will have until the end of 1994 to complete reconstruction. If more time is needed beyond this automatic extension the IRS will consider the facts of individual situations and may grant even more time to reinvest.
 If fire victims reinvest 100 percent of the reimbursement money they receive in replacement of the destroyed property there is no tax on the compensation.
 The IRS began working with the mayors of Oakland and Berkeley shortly after the fire to develop this blanket extension.
 "We are very sympathetic to the difficulties residents may have in the long and painful process of rebuilding," said Miceli. "The IRS does not want to add to the anxieties of fire victims. We want to assure them the IRS will allow them the time they need to rebuild without facing tax liabilities on their reconstruction compensation," he said.
 Normally, when a piece of property is destroyed in a disaster the victim has two years from December 31st of the year in which they receive compensation to reinvest in replacement property without having to pay tax on the gain. The two-year clock starts running when the amount of compensation results in a taxable gain. The amount of taxable gain is generally the difference between the insurance compensation or other payments to victims and the amount they paid for the property, plus the cost of any improvements made before it was destroyed.
 Under terms of the automatic extension, fire victims are being given the additional time provided these guidelines are followed:
 1. The property destroyed by the fire must have been their
 principal residence.
 2. The replacement property will be their principal residence.
 3. The replacement property:
 A. is currently under construction or reconstruction, or
 B. residents have exercised due diligence and reasonable
 effort to pursue construction or reconstruction. (An
 example of reasonable effort would be to have a signed
 contract to rebuild that is binding as of Dec. 31, 1993.
 At a minimum, victims should keep a diary showing what they buy and what those items cost. Residents who ultimately do not replace the property will have to file an amended 1991 tax return to report any gain received. A copy of the text of the letter follows: December 12, 1991 Dear Fire Victim: We are sorry you were a victim of the Oakland/Berkeley fire storm which claimed many homes on or about October 20, 1991. As you may know, the President declared the fire storm a Qualifying Federal Disaster Area. This letter contains important information for fire victims who have received or will receive compensation for their losses, and who intend to reinvest their compensation in replacement property. Normally, when a piece of property is destroyed in a disaster the victim has two years from December 31st of the year in which they receive compensation to reinvest in replacement property without having to pay tax on the gain. The two-year clock starts running when the amount of compensation you receive results in a taxable gain. The amount of taxable gain is the difference between the insurance or other compensation you receive and your adjusted basis in the property (generally what you paid for the property plus the cost of any improvements made before the property was destroyed.) This provision of the tax law is referred to as "involuntary conversion of property." Some fire victims have expressed concerns about being able to fully reinvest their insurance compensation within the two year replacement period. This letter is to notify you that the IRS will automatically grant a one year extension of time to those fire victims who are in the process of reinvesting insurance proceeds into replacement property provided the following guidelines are followed: 1. The property destroyed by the fire must have been your principal residence. 2. The replacement property will be your principal residence. 3. The replacement property:
 A. is currently under construction or reconstruction, or
 B. you have exercised due diligence and reasonable effort
 to pursue construction or reconstruction. An example of
 exercising due diligence and reasonable effort would be to
 have signed a contract to rebuild that is binding as of
 December 31, 1993. If you need more time beyond this automatic extension which expires on December 31, 1994, the IRS will consider the facts of your situation and render all possible assistance to grant you additional time to reinvest. This automatic extension will also apply to replacement of your personal property (furnishings, possessions, etc.) contained in your personal residence and destroyed by the fire. Please write to us when you replace the property. You are required to report the details of the replacement on your federal income tax return for the year in which the property is replaced. If you ultimately do not replace the property, you will have to file an amended 1991 return and report any gain you realized. If you have questions concerning any aspect of involuntary conversion of property, or concerning other tax aspects of your loss, please call us at 1-800-829-1040. The IRS is ready, willing and able to help you with any aspect of the tax consequences of the disaster. Signed, F.S. Miceli Internal Revenue Service District Director San Francisco District
 -0- 12/12/91
 /CONTACT: Larry Wright of Internal Revenue Service, 415-556-0551/ CO: Internal Revenue Service ST: California IN: FIN SU:


RM -- SF002 -- 1886 12/12/91 11:00 EST
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Date:Dec 12, 1991
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