In October 2023, Hamas militants launched a surprise attack on Israel, triggering a violent conflict that lasted for several days. The terrorist attacks caused widespread damage, injuries and deaths in Israel, as well as in the Gaza Strip and the West Bank. In response to this humanitarian crisis, the Internal Revenue Service (IRS) announced tax relief for individuals and businesses affected by the terrorist attacks in the State of Israel. This article will explain what this tax relief is, who is eligible for it, how to apply for it, and what are its implications.

What is the focus of this article?

This article will focus on the tax relief provided by the IRS under Notice 2023-71, which postpones various tax filing and payment deadlines that occurred or will occur during the period from Oct. 7, 2023, through Oct. 7, 2024 (postponement period). This article will also provide relevant information and links from other sources, such as news articles and IRS publications, to help readers understand the context and details of this tax relief.

Why is understanding these tax matters important?

Understanding these tax matters is important because they may affect your tax obligations and rights as a taxpayer. By taking advantage of this tax relief, you may be able to reduce your tax burden, avoid penalties and interest, and obtain refunds or credits. You may also be able to claim deductions or exclusions for certain income or losses related to the terrorist attacks. However, you may also face some challenges or complications when applying for this tax relief, such as proving your eligibility, gathering the required documents, or dealing with conflicting deadlines. Therefore, it is advisable to consult a qualified tax professional before making any decisions regarding your taxes.

Section 0: Israel Tax Relief Updates

What US states have announced a Tax Relief?

Illinois:

Tax relief for conflict-affected taxpayers: On Tuesday, October 17, 2023, Gov. JB Pritzker announced tax relief for individuals and businesses affected by the attacks in Israel and the Israeli-Palestinian conflict. They can request to waive penalties and interest for income, withholding, sales, specialty, and excise taxes.
Deadline and eligibility: The deadline for filing and paying taxes has been extended to October 7, 2024. The relief is limited to returns and payments due between October 7, 2023, and October 7, 2024. The eligible taxpayers include those who reside or operate in the covered area, those who are injured or taken hostage, and those who assist in the relief efforts.
How to request relief: Taxpayers should send a brief written explanation of why they cannot file or pay on time to IDOR. They should provide their name, account number, mailing address, and estimated date of filing or payment. They can send their request electronically (REV.DisasterRelief@illinois.gov) or by mail using the address on the return, in which case they should write “Israeli-Palestinian Conflict 2023” on the top of their return, in red.

Section 1: Understanding IRS Tax Relief

What is IRS tax relief?

IRS tax relief is a term that refers to various forms of assistance or leniency that the IRS may offer to taxpayers who are facing difficulties or hardships due to certain circumstances beyond their control. These circumstances may include natural disasters, such as hurricanes, floods, or wildfires; military actions, such as wars or conflicts; or terroristic actions, such as attacks or threats. IRS tax relief may include postponing or extending tax deadlines, waiving or reducing penalties and interest, granting refunds or credits, allowing deductions or exclusions, or providing other forms of relief. IRS tax relief is usually announced by the IRS through news releases, notices, or other publications on its website.

What’s in the law regarding tax reliefs related to terrorist attacks?

The law regarding tax reliefs related to terrorist attacks is primarily governed by the Victims of Terrorism Tax Relief Act of 2001 and the Internal Revenue Code section 7508A. Here are some key points:

Tax Relief for Victims’ Families: The law waives the income tax liability of a victim who died in one of the attacks for both the year of the attack and the previous year. It ensures that a minimum benefit of $10,000 is provided to the family of each victim.
Abatement of Taxes: The law provides that the minimum amount of relief for these victims will be $10,000. If the abated taxes for the two years are less than that, the government will refund the difference to the surviving spouse or to the victim’s estate.
Relief for Affected Taxpayers: The IRS provides relief under section 7508A of the Internal Revenue Code for persons that the Secretary of the Treasury has determined to be affected by a terroristic action. This includes any individual whose principal residence, or any business entity or sole proprietor whose principal place of business, is located in the affected area. Also eligible are any individual, business entity or sole proprietor, or estate or trust whose tax return preparer or records necessary to meet a deadline for postponed acts are located in the affected area.
Postponement of Certain Acts: The law provides authority to postpone the time (up to one year) for performing certain acts under the internal revenue laws for a taxpayer determined by the Secretary to be affected by a terroristic or military action.
Additional Relief: The Department of Treasury and IRS may provide additional relief in the future.

Why has the IRS provided this relief in response to the terrorist attacks in Israel?

The IRS has provided this relief in response to the terrorist attacks in Israel because it recognizes that these attacks have caused significant disruption and distress to many taxpayers who live or work in the affected areas, or who have relatives, friends, or business associates in the affected areas. The IRS also acknowledges that these taxpayers may have difficulty meeting their tax obligations or performing other time-sensitive tax-related actions due to the terrorist attacks. Therefore, the IRS has exercised its authority under Section 7508A of the Internal Revenue Code to grant up to one year of relief for taxpayers affected by a terroristic or military action. The IRS has also coordinated with the Department of the Treasury and the Office of Foreign Assets Control (OFAC) to ensure that this relief is consistent with the U.S. government’s policies and sanctions regarding Israel and its neighboring regions.

Section 2: Eligibility for IRS Tax Relief

Who can benefit from this tax relief?

The following categories of taxpayers can benefit from this tax relief:

Any individual whose principal residence is in Israel, the West Bank, or Gaza (the covered area).
Any business entity or sole proprietor whose principal place of business is in the covered area.
Any individual, business entity or sole proprietor, or estate or trust whose books, records, or tax preparer is located in the covered area.
Any individual who is a relief worker affiliated with a recognized government or philanthropic organization assisting in the covered area.
Anyone visiting the covered area who was killed, injured, or taken hostage due to the terrorist attacks.

IMPORTANT:

The IRS will automatically identify taxpayers whose principal residence or principal place of business is located in the covered area based on previously filed returns and apply relief.

What if your situation is special?

Change of Address or Business Location: The IRS identifies taxpayers eligible for automatic relief based on the address or business location in their previously filed returns. If you have moved or changed your business location into the covered area after filing your last return, the IRS might not have the updated information, and thus, the relief might not be applied automatically.
New Taxpayer: If you’re a new taxpayer who has not yet filed a return, your information would not be in the IRS system, so the relief would not be applied automatically.

What to do if the relief cannot be applied automatically to you?

You can still obtain this relief by calling the IRS disaster hotline at 866-562-5227.

What types of income or assets might be relevant for this tax relief?

According to the IRS, the tax relief applies to individuals and businesses that have income or assets in Israel, the West Bank or Gaza, or that are affected by the terrorist attacks in those areas. Some examples of income or assets that might be relevant are:

– Wages, salaries, tips, commissions, bonuses or other compensation earned in the covered area
– Interest, dividends, rents, royalties or other passive income derived from sources in the covered area
– Business income from activities conducted in the covered area
– Capital gains from the sale or exchange of property located in the covered area
– Retirement plan contributions or distributions related to employment in the covered area
– Estate or trust income or distributions attributable to assets located in the covered area

The tax relief does not apply to income or assets that are unrelated to the terrorist attacks, such as income from sources outside the covered area, or assets that are not located in the covered area.

Section 3: Applying for IRS Tax Relief

If you are eligible for the tax relief, you do not need to take any action to obtain it. The IRS will automatically identify taxpayers whose principal residence or principal place of business is located in the covered area based on previously filed returns and apply relief.

As we explained above, if you’re a new taxpayer or you moved into the covered area recently, the IRS might not have your updated information yet and thus, the relief would not be applied to you automatically. To clarify your situation call the IRS disaster hotline at 866-562-5227.

How can one apply for this tax relief?

To apply for this tax relief, you need to file your federal tax return as you normally would, but indicate on the top of the return that you are claiming relief due to the terrorist attacks in Israel. You can write “Terrorist Attacks – Israel” in red ink on your return, or use a similar notation if you file electronically.

If you receive a notice from the IRS about a penalty or interest charge related to a postponed deadline, you should call the number on the notice and explain that you are eligible for the tax relief.

If you need more time to file your return beyond Oct. 7, 2024, you can request an extension by filing Form 4868 (for individuals) or Form 7004 (for businesses) by that date. However, you will still need to pay any taxes due by Oct. 7, 2024, to avoid penalties and interest.

What forms and documents are needed to apply for this tax relief?

You do not need any special forms or documents to apply for this tax relief, other than your regular federal tax return and any supporting schedules and attachments. However, you should keep records of your income and expenses related to the covered area, as well as any evidence of your eligibility for the relief, such as proof of residence, employment, business activity or affiliation with a relief organization in the covered area.

You may also need to provide additional information if you claim certain tax benefits that are affected by the postponement period, such as:

– The foreign earned income exclusion or foreign housing exclusion/deduction (Form 2555 or Form 2555-EZ)
– The foreign tax credit (Form 1116)
– The earned income credit (Schedule EIC)
– The child tax credit or additional child tax credit (Schedule 8812)
– The education credits (Form 8863)
– The health coverage tax credit (Form 8885)

For more details on how these and other tax benefits are affected by the postponement period, see Notice 2023-71 PDF on IRS.gov.

When are the deadlines for applying for this tax relief?

The deadlines for applying for this tax relief depend on the type of tax return or payment that is postponed. Generally, the deadlines are extended by one year from their original due dates. For example:

– Individuals who had a valid extension to file their 2022 return due to run out on Oct. 16, 2023, now have until Oct. 16, 2024, to file their return.
– Calendar-year corporations whose 2022 extensions run out on Oct. 16, 2023, now have until Oct. 16, 2024, to file their return.
– 2023 individual and business returns and payments normally due on March 15 and April 15, 2024, now have until March 15 and April 15, 2025, to file and pay.
– Quarterly estimated income tax payments normally due on Jan. 16, April 15, June 17 and Sept. 16, 2024, now have until Jan. 16, April 15, June 17 and Sept. 16, 2025, to pay.
– Quarterly payroll and excise tax returns normally due on Oct. 31, 2023, and Jan. 31, April 30 and July 31, 2024, now have until Oct. 31, 2024, and Jan. 31, April 30 and July 31, 2025, to file.
– Calendar-year tax-exempt organizations whose extensions run out on Nov. 15, 2023, now have until Nov. 15, 2024, to file their return.

For a complete list of the postponed deadlines and the new due dates, see Notice 2023-71 PDF on IRS.gov.

Section 4: Implications of IRS Tax Relief

The IRS has announced tax relief for individuals and businesses affected by the terrorist attacks in Israel that occurred on Oct. 7, 2023. This relief postpones various tax filing and payment deadlines that occurred or will occur during the period from Oct. 7, 2023, through Oct. 7, 2024. This means that eligible taxpayers have more time to file their returns, pay their taxes, and perform other tax-related actions without penalties or interest.

How might this tax relief affect an individual’s overall tax obligations?

The tax relief may reduce the overall tax burden for some individuals who qualify for it. For example, if an individual had a valid extension to file their 2022 return by Oct. 16, 2023, they can now file it by Oct. 7, 2024, without any late-filing penalty. However, they still have to pay any taxes due by April 18, 2023, or face interest charges. Similarly, if an individual owes quarterly estimated income tax payments for 2024, they can postpone them until Oct. 7, 2024, without any penalty or interest. However, they may have to adjust their withholding or estimated payments for the following year to avoid underpayment penalties.

What are the potential benefits of applying for this tax relief?

The potential benefits of applying for this tax relief include:

– Having more time to gather records, prepare returns, and consult with tax professionals.
– Having more cash flow and liquidity during a difficult time.
– Avoiding penalties and interest that would otherwise accrue on late filings and payments.
– Reducing the risk of audits or notices from the IRS.

What challenges might one face when applying for this tax relief?

The potential challenges of applying for this tax relief include:

– Keeping track of the different deadlines and requirements for various types of taxes and forms.
– Calculating the correct amount of taxes due and the available credits and deductions.
– Providing proof of eligibility and residence or business location in the covered area.
– Dealing with possible discrepancies or conflicts between federal and state tax laws.

Conclusion

The IRS tax relief for those affected by the terrorist attacks in Israel is a significant measure that can help ease the financial stress and hardship for many taxpayers. However, it also involves some complexities and uncertainties that may require professional guidance and assistance. Therefore, it is advisable to consult with a qualified tax advisor before applying for this relief or making any tax-related decisions.

References:

[IRS: Taxpayers impacted by the terrorist attacks in Israel qualify for tax relief; Oct. 16 filing deadline, other dates postponed to Oct. 7, 2024 | Internal Revenue Service]

[Relief for Taxpayers Affected by the Terroristic Action in the State of Israel | Notice 2023-71]

[IRS offers tax relief to those impacted by Israel-Hamas conflict]