Navigating Individual Tax Compliance through a Natural Disaster: How to Recover and Prepare for the Future

By Ann Boyd Davis, Ph.D., CPA, CGMA; Emily S. Keenan, Ph.D., CPA and Robert A. Seay, DBA, CPA 

Special to the UCBJ

Editor’s Note: This article was originally published in the May/June 2020 issue of the Tennessee CPA Journal and has been reprinted with permission from the Tennessee Society of CPAs.

In the very early hours of March 3, 2020, Middle Tennesseans fell victim to a nearly eighty-mile path of multiple destructive tornadoes claiming many lives and destroying millions of dollars in property. In total, ten tornadoes touched down in Tennessee with seven in Middle Tennessee ( Hundreds of homes and vehicles were completely demolished leaving many residents homeless and without clothing, food, medicine and transportation. Families also lost treasured photographs, collectibles and heirlooms; while important banking, insurance, employment and medical records were shredded and scattered over thousands of square miles. 

For those who live through and experience the aftermath of a natural disaster, dealing with the loss of family, friends, neighbors, co-workers and property becomes a painful hurdle to clear. At that moment, nothing else really matters. However, soon after storm victims begin to clear and replace damaged possessions, they realize that personal home computers, documents and financial records also no longer exist. Credit and debit cards, checks, receipts and bank statements have simply disappeared. To make matters worse, driver’s licenses, passports and other forms of personal identification can’t be located. Quite understandably, working through the remnants of a natural disaster brings normal every day activities to a screeching halt. However, victims may not realize that even in the face of a catastrophic event, they may still have to comply with normal federal and state income tax filing and payment deadlines.  

In the wake of a natural disaster, taxpayers who experience financial losses will want answers to a host of tax-related questions. When are filing and payment extensions granted?  What are the deadlines associated with available extensions? What actions should survivors of natural disasters take to identify, recreate and recover relevant tax documents? What types of losses are eligible for deduction on taxpayers’ returns, how much may they claim and in which tax year(s) may the losses be reported? Finally, what precautions can taxpayers take to adequately prepare for and minimize the risks associated with similar future events? This article addresses these questions and provides suggestions for clients, family and friends who need guidance in the aftermath of a natural disaster.  


When are disaster-affected individuals granted an extension for federal filing and tax payments? While this is an easy question for tax professionals, the answer may not seem intuitive to average taxpayers. They often find that losses from fire, flood or wind damage may not qualify for a federal disaster extension. This is because the Federal Emergency Management Agency (FEMA) must first declare a location as a federal disaster area. For example, FEMA recently declared the Tennessee counties of Davidson, Putnam and Wilson as federal disaster areas due to the March 3 tornadoes. With that designation, all residents of these areas received an automatic filing and payment extension to July 15, 2020. Nonresidents who incurred losses in these three counties also received both extensions. Therefore, individuals living outside the disaster area but affected in the disaster area must call the IRS disaster hotline at 866-562-5227 to request tax relief. However, all other individuals in the surrounding counties do not receive the same automatic filing and payment extension. They are not eligible for a payment extension but can request an October 15 filing extension by submitting Form 4868 on or before April 15.[1] This means individuals must recreate or recover documentation to estimate and still make tax payments by the original filing deadline.[2]

Additional extensions may also be allowed in the event of a federal disaster. For instance, Middle Tennesseans in the three aforementioned disaster counties have until July 15, 2020 to make 2019 IRA contributions and quarterly estimated tax payments, which were originally due on April 15 and June 15. In the event that the IRS, in error, issues a notice for late filing or late payment penalty, they will provide abatement. However, taxpayers must contact the IRS at the phone number listed on the notice to receive abatement ( 

Taxpayers should also remember to consider their state tax filing and payment requirements when impacted by a federal disaster. For example, the Tennessee Hall income tax filing and payment deadlines are automatically extended to July 15, 2020 for affected individuals. As in the case of federal law, those not affected in the designated disaster area must file for an extension.[3] Tennesseans are also eligible to receive a refund of state sales taxes on major appliances, residential building materials and residential furniture if they received FEMA assistance. The deadline to file a refund claim is one year from the FEMA decision date (—events/hot-topics-main/hot-topics/important-notice–natural-disaster-tax-relief-notice-.html). 


After a devastating event, individuals face the task of reconstructing financial and tax documentation. These records are essential in filing the required tax returns and in documenting the amount of casualty loss. Below is a list of steps to recreate the documentation:

  1. Acquire a Duplicate Driver’s License: Mobile units are often set up to assist in printing duplicate licenses. Fees for this service are typically waived. Individuals may need a new license printed later as home residence addresses may change. 
  2. Obtain a P.O. Box Address: The cost of a P.O. Box can vary between $19 and $75 for six months, depending on the location. The individual can use the P.O. Box as a permanent address. While the P.O. Box address cannot be used on a driver’s license, it can be used on your tax return and with insurance companies, banks, financial institutions, etc.
  3. Change Passwords: Passwords to different logins may need to be reset because you simply cannot remember them. Out of an abundance of caution, individuals might also want to reset passwords in case anyone found documentation left behind by the disaster.
  4. Obtain Tax Transcripts from the IRS: What a wealth of information! Taxpayers can receive a tax return transcript, tax account transcript, record of account transcript or a wage and income transcript. This information is available for the current year and prior three years. Individuals can obtain this information either online or via mail. If requesting via mail, use Form 4506-T. The Tax Return Transcript provides most line items from the return including adjusted gross income. The Wage and Income Transcript provides data from Forms W-2, 1099, 1098 and Form 5498. Unfortunately, Wage and Income Transcripts from the current year may not be available until July. Therefore, for the current year, the taxpayer will need to contact the employer, banks, and financial institutions (see steps 6 and 7) for tax supporting documentation. Tax transcripts are free ( 
  5. Request prior tax return: Individuals can request a copy of their prior year tax return using Form 4506. They should use the prior year return as a road map for the current year return. While this may not capture everything, individuals will then only need to focus on the changes that took place during the current year when recreating documentation.  
  6. Contact employer for W-2: Individuals should reach out to employers to reissue their W-2 or log into their secure system to print the current year W-2.
  7. Contact banks and financial institutions for 1099s: Individuals should reach out to banks and financial institutions to reissue 1099s or log into secure online portals to print the current year 1099s. 
  8. Request credit report: To ensure that no one has stolen their identity, individuals should request regular credit reports during the upcoming year. 


What is a casualty loss and when does it reduce tax liability? A casualty loss results from a sudden, unexpected or unusual event. These events can include a flood, hurricane, tornado, fire, earthquake or volcanic eruption. However, damage or loss from the normal wear and tear or progressive deterioration of property does not constitute a casualty loss. Taxpayers should know that casualty losses are only deductible if they result from a federally declared disaster.[1]In the case of the Tennessee tornado outbreak, casualty losses would only be available for affected taxpayers in the three designated federal disaster counties. All losses pertaining to surrounding counties would not be allowed as a casualty loss deduction. It is also important to help individuals understand that even though they may have a casualty loss, the aggregated loss less $100 for each casualty event is only deductible to the extent that it exceeds 10 percent of adjusted gross income ( 


A casualty loss calculation is cumbersome and involves multiple steps. Irrespective of who (tax professional or taxpayer) actually calculates the loss, both real and personal property losses must be evaluated on an item-by-item basis. This means that the taxpayer must have an inventory record of all assets damaged or destroyed.  The inventory records should include the cost of each asset, any insurance payments received and the fair market values before and after the federal disaster. As an example, refer to Exhibit 1 below from IRS Publication 584, which shows how to calculate the casualty loss for two assets, which were completely destroyed ( 

The first step in calculating the casualty loss is to determine if insurance payments or other reimbursements exceed the cost or other basis of each asset. If so, there is a gain from the casualty event (see columns 1-4). These gains are accumulated and reduced by total losses not attributable to a federal disaster. If any gains remain, they are offset by losses from a FEMA declared disaster. In the illustrative example, there are no gains from the casualty event.

The next step is to calculate the decrease in fair market value from before to after the disaster. In this example, both assets were completely destroyed resulting in a market value drop of $275 for a chair and $60 for a clock (see columns 5-7). Column 8 shows the smaller of each asset’s cost or market value drop ($275 and $60). The casualty loss (column 9) is then determined by subtracting any insurance or other reimbursements (column 3) from the amount in column 8 ($75 and $60). 

Claiming the Loss

After determining the casualty loss on each item, losses are aggregated by each casualty event. Then, individuals must subtract $100 for each casualty event from the aggregate total. Finally, all casualty events are added up and 10 percent of adjusted gross income is subtracted from the total resulting in the individual’s allowable casualty loss for the year (see Exhibit 2). Individuals claim the amount of casualty loss as an itemized deduction on Schedule A ( 

When to Deduct

Individuals can choose to deduct an allowed casualty loss in the current tax year or immediately preceding tax year. To take the deduction in the immediately preceding tax year, taxpayers can deduct the loss on the return for the preceding year or amend the tax return for the preceding year if filing has already occurred. For Middle Tennesseans in the federally declared disaster counties, taxpayers can take the casualty loss on their 2019 tax return by including that loss in the return when they file or by filing an amended return (Form 1040-X) for 2019.  


While no one ever wants to witness and work through a natural disaster, what preemptive actions can be taken to soften the blow if the worst were to happen? 

Use paperless recordkeeping

By receiving bank statements and tax documentation through email or other secure electronic formats, individuals are securing financial records. Other tax documentation, such as a W-2, that might be mailed can be scanned into an electronic format. 

Store electronic files

Store electronic records in a secure, safe place. Backing up the electronic documentation into an external hard drive and storing in a separate location is good practice. Remember that storing for convenience is insufficient. Consider storing in a bank safe deposit box or, even better, with a close family member or friend in a different geographic area.[1]

Document valuables

Compiling a room-by-room inventory of your belongings is a tremendous asset in the event of a disaster. This documentation proves market value of items for insurance and casualty loss claims. Using the IRS Workbook on Casualty Loss is a good tool to use ( Also, consider taking pictures or a video to document real and personal property items. Again, the use of a bank safe deposit box or storing with a close family member or friend in a different geographic area is advisable. 

Update emergency plans

Based on guidance by the IRS, individuals should update emergency plans annually. After completing tax returns, save a PDF of the return as well as the supporting documentation, including W-2, closing statements on a house, 1099s, etc. Ensure that the method of receiving severe weather information is working. Replace batteries in a NOAA Weather Radio and smoke alarms. Consider having two methods of receiving severe weather notification. 


While taxpayers all across Middle Tennessee work to put their lives back together after the tragic tornadoes in the early hours of March 3, we attempt to offer guidance in recreating documentation for the 2019 tax year and assistance in calculating the casualty loss. The article should aid practitioners in guiding clients and others through this difficult time. We also offer some preventative measures for taxpayers so that they might be better prepared in the event of a natural disaster. Ultimately, we hope that those who have suffered enormous losses will benefit from a road map that negotiates the path to tax compliance.

About the Authors

Ann Boyd Davis, Ph.D., CPA, CGMA is an associate professor of accounting at Tennessee Tech University. She can be reached at

Emily S. Keenan, Ph.D., CPA is an assistant professor of accounting at Ohio University. She can be reached at

Robert A. Seay, DBA, CPA is a professor of accounting at Tennessee Tech University. He can be reached at

[1] While a bank safe deposit box provides security in the event of a fire in the home, natural disasters that occur in a particular geographic region might also damage or destroy banks and important taxpayer documentation. Having a second backup with a close friend or family member in a different geographic area increases disaster preparation. 

[1] As of March 21, 2020, the IRS has also extended the filing and payment deadline for all individual returns to July 15, 2020 due to COVID-19. Estimated tax payments due on April 15 are included in this relief. Additional time to file beyond July 15 may be requested by filing Form 4868. Payments must be made by July 15, 2020 to avoid interest and penalties (

[2] Filing for the extension to file not extension to pay is the same for all taxpayers and is completed using Form 4868. 

[3] Similar to the federal income tax extension related to COVID-19, the Tennessee Department of Revenue extended the due date for filing and paying the Hall income tax from April 15, 2020 to July 15, 2020 (—events/hot-topics-main/hot-topics/covid-19-updates.html).

[4] This is a change in the tax law for tax years beginning after 2017. 

[5] While a bank safe deposit box provides security in the event of a fire in the home, natural disasters that occur in a particular geographic region might also damage or destroy banks and important taxpayer documentation. Having a second backup with a close friend or family member in a different geographic area increases disaster preparation. 

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