On Dec. 12, 2024, the long-awaited Federal Disaster Tax Relief Act of 2023 was signed into law. This short but powerful act calls for three main disaster relief provisions.

Extension of casualty loss rules for disasters

First, the act extends the rules for the treatment of certain disaster-related personal casualty losses under Sections 301 and 304(b) of the Taxpayer Certainty and Disaster Tax Relief Act of 2020.

Currently, taxpayers are allowed a casualty loss deduction that exceeds 10% of their adjusted gross income (AGI) with a $100 price reduction for each casualty claimed. For qualified disaster-related personal casualty losses, the act eliminates the 10% AGI threshold and increases the $100 reduction to $500 per casualty claimed. Additionally, taxpayers do not need to itemize to take advantage of this benefit.

This relief is available for disasters between Jan. 1, 2020 – Jan. 11, 2025 (if declared by Feb. 9, 2025). Taxpayers impacted by disasters during this period, such as hurricanes Helene and Milton, the wildfires in Hawaii and California, and the East Palestine, Ohio, train derailment, may go back and amend their tax returns to adjust for these changes.

Exclude wildfire relief payments from gross income

Any amounts taxpayers received as a qualified wildfire relief payment from Jan. 1, 2020, through Dec. 31, 2025, are excluded from gross income under §139.

Qualified wildfire relief payments include payments received by or on behalf of an individual for losses, expenses, or damages incurred as a result of a qualified wildfire disaster, but only to the extent the losses, expenses, or damages are not compensated for by insurance or otherwise [§139(b)]. This includes compensation for additional living expenses, lost wages (other than compensation for lost wages paid by the employer which would have been paid as wages), personal injury, death, or emotional distress.

Qualified wildfire disasters are any federally declared disasters resulting from any forest or range fire.

One critical point to remember is that with tax-exempt payments such as these, there is no double dipping. Taxpayers are not eligible for any deductions, credits, or increases in basis or adjusted basis of the property to the extent of the amount they excluded from income.

Taxpayers have until Dec. 12, 2025 (one year following the passage of this law), to amend their returns to claim a credit or refund if the statute of limitations for a refund already expired or will expire before Dec. 12, 2025.

East Palestine, Ohio, train derailment payments

Lastly, as with the wildfire payments, payments made on or after Feb. 3, 2023, on behalf of the East Palestine, Ohio, train derailment that occurred on Feb. 3, 2023, are considered qualified disaster relief payments, making them excludable from income under §139.

Question: Jim and Sarah are U.S. citizens who reside in the United States and file a joint federal income tax return. They have $5,000 in foreign bank accounts. Jim and Sarah also have $200,000 in foreign stocks issued by a foreign corporation, which is directly held be the couple and is not in a U.S. financial institution.

Could Jim and Sarah have a Form 8938, Statement of Specified Foreign Financial Assets, reporting requirement, but not a Report of Foreign Bank and Financial Accounts (FBAR) filing requirement using FinCEN Form 114?

Answer: Yes, a taxpayer could have a Form 8938, filing requirement but not an FBAR filing requirement. This is due to differences in the threshold requirements and types of reportable assets for each form. A taxpayer might have foreign assets that meet the Form 8938 filing thresholds (e.g., foreign stock held directly) but do not qualify as foreign financial accounts. Since FBAR only covers foreign financial accounts, these types of foreign assets would not trigger an FBAR filing.

1. Types of reportable assets:

   a. Form 8938: Covers a broader range of foreign financial assets, including interests in foreign entities and certain foreign non-account assets like foreign stocks held directly.

   b. FinCEN 114 (FBAR): Limited to foreign financial accounts, such as bank accounts, brokerage accounts and similar types of accounts with a financial institution.

   2. Threshold differences:

      a. Form 8938: For specified individuals, the thresholds are as follows: If an unmarried or married filing separate (MFS) taxpayer living in the U.S. has assets over $50,000 on the last day of the tax year, or $75,000 at any time during the tax year, they must file. For married taxpayers filing jointly (MFJ), these limits are $100,000 on the last day of the tax year or $150,000 at any time during the tax year. These amounts increase for U.S. citizens/resident aliens living abroad. For unmarried or MFS taxpayers, the threshold is $200,000 on the last day of the tax year or $300,000 at any time during the tax year. For MFJ taxpayers, the thresholds are $400,000 on the last day of the tax year and $600,000 at any time during the tax year.

      b. FinCEN Form 114 (FBAR): Required if the aggregate value of foreign financial accounts exceeds $10,000 at any point during the calendar year. There are no differences in thresholds whether the taxpayer is married filing a joint return, married filing a separate return or an unmarried taxpayer.

The IRS released Form 15620, Section 83(b) Election, a new form for taxpayers to use when making an election under §83(b). When a taxpayer makes a §83(b) election, they are notifying the IRS they wish to be taxed on property at substantial risk of forfeiture, such as restricted stock, when it is received in exchange for services and not when it vests.

Property is at substantial risk of forfeiture when a condition must be met in the future for the recipient to own the property outright. A common situation where a taxpayer receives property at substantial risk of forfeiture is when a founder or advisor to a startup company receives shares of common stock under the condition they remain with the company for a specified period of time or achieve specific performance milestones. If the recipient doesn’t meet the specified conditions, the stock recipient either surrenders the shares or must sell them back to the company at a discount.

Under §83(a), a taxpayer who receives property with a substantial risk of forfeiture as compensation in connection with services they performed is not taxed on the compensation at the time it is granted. However, a taxpayer may make an election under §83(b) to recognize the property as ordinary income on the date it is granted. A taxpayer who makes a §83(b) election may be eligible to treat the future appreciation of the property as long-term capital gains if it is held for longer than one year.

An election under §83(b) must be submitted to the IRS within 30 days of receiving the restricted property. Taxpayers who do not file within this 30-day window may not make a late election. Section 83(b) elections can’t be revoked.

Before the release of Form 15620, a taxpayer making a §83(b) election was required to draft a document explaining their election using sample language included in IRS guidance. Because the situation was explained by the taxpayer, there was a chance the IRS could reject the election for failure to include the proper language or information. Using Form 5620 ensures that taxpayers have included all of the necessary information when making their election. Taxpayers still have the option of submitting a document explaining their election to the IRS instead of using Form 15620, but it is recommended they use the form, which must be mailed to the IRS.