NTA Blog: TAS Act Would Tweak IRS Disaster Relief to Fix Two Recurring Problems

This blog continues my look at the discussion draft of the (TAS Act) focusing on IRS Disaster Relief. Senator Mike Crapo, chairman of the Senate Finance Committee, and Senator Ron Wyden, the committee’s ranking member, released the draft earlier this year, and it would make many much-needed improvements to tax administration. Today’s focus is on section 112, which would fix two recurring problems for disaster victims. The House recently passed this provision as a standalone bill titled the Disaster Related Extension of Deadlines Act. (For the sake of discussion below, I’ll refer to the provision as TAS Act section 112, but the Disaster Related Extension of Deadlines Act makes the same changes.)

 

After a federally declared disaster, the IRS can issue relief that gives taxpayers extra time to meet various deadlines. The problem is that the IRS’s disaster relief postponements do not affect all parts of the tax code the same way. Deadlines and dates change for some purposes but not for others. This isn’t always negative, but there are situations when it can cause taxpayers unnecessary confusion and expose them to additional costs and the loss of valid refunds. Section 112 of the TAS Act aims to fix two issues in the tax code that have created unintended consequences for disaster victims. In these circumstances disaster postponements should be treated the same as extensions under the code.

 

First Problem: Demand for Payment Before It’s Due

Many taxpayers elect to file their returns prior to the postponed disaster due date and hold off payment until the postponed due date. Unfortunately, while IRS disaster relief can give taxpayers additional time to file tax returns and pay amounts owed, the IRS takes the position that the relief doesn’t change when the IRS must assess tax and first issue a notice demanding payment. For taxpayers that file early but properly wait to pay until the postponed disaster payment date, this creates confusion and frustration as the IRS begins the collection process prior to the due date.

 

Once an early return is filed the IRS sends “notice and demand” collection letters alerting certain taxpayers in disaster areas that their payments are due and subject to interest and penalties if not paid by a specified date before the actual deadline provided in the disaster relief.

 

In 2023, the IRS sent millions of these notices erroneously informing taxpayers in disaster areas that their tax was due prior to the postponed deadline. The IRS followed up with additional notices attempting to explain the situation, but that added confusion as well. Since that time, the IRS has greatly clarified the letter package it uses for this purpose, adding an explanatory coversheet that provides the correct due date for payment and instructs taxpayers to disregard the due date in the notice itself. Although this is a significant improvement, the simpler and better result would be to send a notice at the correct time that lists only the correct due date, rather than erroneously stating interest and penalties are due for late payments when the due date has not occurred.

 

The TAS Act would modify the language in the tax code to align the date when the IRS must first demand payment with the postponed payment deadline for disaster victims. That way, the IRS in these situations can send clear notices without conflicting information.

 

For more on this, see my Purple Book legislative recommendation: Protect Taxpayers in Federally Declared Disaster Areas Who Receive Filing and Payment Relief From Inaccurate and Confusing Collection Notices.

 

Second Problem: Refunds the IRS Can’t Pay

Disaster relief postponements also typically do not change when certain tax payments are considered paid under the tax code. This can cause confusion for taxpayers who later .

 

When taxpayers file their tax return, they generally have three years from the date the return is filed to later file a refund claim. However, under a corresponding “lookback” rule in the tax code, the IRS can only refund amounts that were paid within three years from the date of the refund claim. Tax that is pre-paid throughout the year – namely, estimated tax and withholding from taxpayer paychecks – is generally considered paid on the date the tax return is due, which defaults to April 15 for most individual taxpayers. Taxpayers who file claims for credit or refund within three years from the date the original return was filed will have their credits or refunds limited to the amounts paid within the three-year period before the filing of the claim, plus the period of any extension of time for filing the original return (the “three-year lookback period”).

 

This combination of complex tax procedural rules creates the problem. IRS disaster relief provides taxpayers with additional time to file their original tax return and potential claim for refund, but it doesn’t change the date of payment. Thus, taxpayers might end up filing a valid, timely refund claim but do so only after the lookback period has expired with respect to their prepaid tax. The tax code in that situation prohibits the IRS from paying the refund for which the taxpayer would otherwise qualify. I believe this is an unintended consequence that harms taxpayers and is a technical rule unknown to many taxpayers and professionals.

 

The TAS Act provision fixes the procedural problem by including in the lookback period the time postponed under the disaster relief, similar to the rule for returns filed on extension. Treating the postponement the same as an extension in the tax code resolves the issue, eliminates taxpayer confusion, and allows proper refunds for timely filed amended returns.

 

For further discussion on this, see my Purple Book legislative recommendation Amend the Lookback Period for Allowing Tax Credits or Refunds to Include the Period of Any Postponement or Additional or Disregarded Time for Timely Filing a Tax Return.

 

Disaster Related Extension of Deadlines Act

On April 1, 2025, the House unanimously passed the Disaster Related Extension of Deadlines Act (H.R. 1491), introduced by Representative Greg Murphy and consponsored by Representatives Jimmy Panetta and Tim Moore. The bill makes the same amendments to the tax code as TAS Act section 112.

 

On April 15, 2025, Senators Raphael Warnock and Thom Tillis , also titled the Disaster Related Extension of Deadlines Act.

 

Conclusion

IRS disaster relief provides invaluable extra time for taxpayers who are impacted by disasters to get their affairs in order and meet their tax requirements. But the tax code contains a lot of moving parts, and not all of them move in sync with disaster-relief postponements. Section 112 of the TAS Act and the Disaster Related Extension of Deadlines Act would solve two of these problems.

 

If these changes are enacted, many taxpayers may never realize it – the provision eliminates these unintended consequences and the unnecessary complications that most taxpayers would not have expected to arise in the first place. But making the world subtly simpler for taxpayers in the aftermath of a disaster can nonetheless improve their lives, taking away one more thing to worry about in an already stressful time.

 

Resources

• Crapo, Wyden Issue Discussion Draft to Improve IRS Administration
• Disaster Related Extension of Deadlines Act (H.R. 1491)
• What to Know if You’ve Been Affected By a Federally Declared Disaster
• Tax Assistance for Disaster Situations
• Purple Book legislative recommendation: Protect Taxpayers in Federally Declared Disaster Areas Who Receive Filing and Payment Relief From Inaccurate and Confusing Collection Notices.
• Purple Book legislative recommendation: Amend the Lookback Period for Allowing Tax Credits or Refunds to Include the Period of Any Postponement or Additional or Disregarded Time for Timely Filing a Tax Return.
• Treasury Inspector General for Tax Administration: Additional Actions Are Needed to Clearly Inform Taxpayers in Federally Declared Disaster Areas of Balance Due Payment Postponement Timeframes.

 

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