Prepare for Summer Wildfires and Hurricanes

Published May 2, 2025

The Internal Revenue Service (IRS) reminds taxpayers that May is National Wildfire Awareness Month and the week of May 4th to the 10th is National Hurricane Preparedness Week. The National Oceanic and Atmospheric Administration (NOAA) have warned that there is a substantial chance that the Atlantic hurricane season will be stronger than usual. During the first quarter of 2025 the Federal Emergency Management Agency (FEMA) issued 12 disaster declarations.

With the substantial risk of hurricanes in the southeastern region and the possibility of tornadoes, fires, earthquakes and other natural disasters throughout the nation, it is important for all taxpayers to take reasonable protective steps. These steps include securing and duplicating essential documents, creating lists of collections and other valuable property and learning how to find assistance. Planning ahead can help ensure a smoother financial recovery after a natural disaster.

1. Secure Your Documents — You should keep your important documents in waterproof containers and in a secure location. Important items include your tax returns, birth certificates, deeds to your home and other property, insurance policies and other similar documents. Some individuals choose to have a copy of these documents held by a relative or friend in a different state.
2. Copies of Documents — Some of your documents may be available only on paper, so you may wish to scan them into a PDF or other digital file format. Once they are scanned, you have the option of transferring the documents to a commercial cloud-based storage system. This will provide additional security.
3. Inventory of Valuables — Taxpayers should have a detailed inventory of valuable property. You may take photos or videos of collections, art, jewelry or other valuable items. It is also helpful to have a general description of your property, which may include the make and model numbers of some items.
4. How to Get Help — If you are the victim of a natural disaster, it is important to understand how to obtain assistance. You will want to contact your insurance agent to report the loss. Some financial institutions are able to provide statements and electronic documents that may assist you in rebuilding your financial affairs. The IRS.gov website has a helpful page with the title "Reconstructing Records."
5. IRS Assistance — The IRS provides assistance after a federal disaster has been declared. The IRS “Tax Relief in Disaster Situations” webpage on IRS.gov may be helpful. In many cases, the IRS allows delayed dates for filing or making tax payments. The dates will be specific to your area, so check that out on IRS.gov. There also is an IRS disaster hotline at 866-562-5227.
6. Disaster Loss Deduction — If you have a substantial loss, you may qualify for a disaster loss deduction. The uninsured or unreimbursed disaster loss may be deductible under the rules set forth in IRS Publication 547, Casualties, Disasters, and Thefts.

Ken Graham, Director of the National Weather Service, urged everyone to be ready for the hurricane season. He stated, "Ensure that you are ready to take action if a hurricane threatens your area by developing an evacuation plan and gathering hurricane supplies now, before a storm is bearing down on your community."

$4 Trillion Tax Package Expected by July 4

On April 28, Treasury Secretary Scott Bessent met with Republican leaders in the House and Senate. Secretary Bessent stated they had "great unity" on the large tax and budget bill that is being drafted.

Secretary Bessent stated, "The House is moving things along quickly, and the Senate is in lockstep. We think that they are in substantial agreement and that this is going to be a win for the American people. We have got three legs to the President's economic agenda — trade, tax, and deregulation — and we hope that we can have this tax portion done by Fourth of July."

House leaders had previously hoped to have the bill completed by Memorial Day. There is another consideration, as the Congressional Budget Office indicates federal funds will be exhausted by midyear unless there is a debt limit extension. Secretary Bessent stated he is not yet certain what the required date will be for passage of a debt limit extension bill. He commented, "I can tell you that revenues are up from last year, and we may have a better calculation toward the end of the week or next week."

White House Deputy Chief of Staff James Blair also met with reporters and indicated the House and Senate leaders think they will be able "to deliver the requisite spending reforms to get a great pro-growth tax package along with the President's priorities that he laid out."

A major portion of the savings are expected to come from reductions in clean energy tax credits authorized under the Inflation Reduction Act. However, some House members are in districts that have benefited from the credits, and they are asking for a balanced approach.

While the majority of the provisions will be extensions of the Tax Cuts and Jobs Act, the bill may eliminate taxes on tips, Social Security benefits and overtime pay.

The other major issue is the $10,000 limit on state and local tax (SALT) deductions. There are at least five Republican members of the House from New York, New Jersey, and California who have stated an increase in SALT must be included or they will not vote for a bill. The potential to raise the SALT cap to $25,000 has been discussed, but these five members are requesting a higher limit.

Representative Jason Smith (R-MO) is the Chair of the House Ways and Means Committee. He has emphasized that the Committee members must respect a "vow of silence." While many committee members have been asked repeatedly by members of the press for their thoughts on the bill, they have generally maintained their silence in accordance with that directive.

During the previous year, there was a 72-hour time period between the release of the tax bill provisions and the committee markup. Representative Jimmy Gomez (D-CA) noted that the secrecy rule has an important basis. He stated, "The reason why is that every group of lobbyists would show up if it was known who was going to benefit, who is not going to benefit."

House Freedom Caucus member Ralph Norman (R-SC) indicates there also would be strong lobbying by members of the House if the provisions were released early. Norman stated, "We have to get 218 votes, and the minute you put something out that is going to be done, everyone descends to try to either extend it or take it away, so it does not make sense to talk to the press until you get something more finalized."

Editor’s Note: Your editor does not take a specific position on the tax bill or the spending reductions. This information is offered as a service to our readers.

Easement Investors Seek to Intervene Before Settlement

In Chimney Rock Holdings LLC et al. v. Commissioner; No. 31727-21; T.C. Memo. 2025-39, six limited partnership investors (Putative Participants) filed Motions to Participate in the proceeding.

Chimney Rock Holdings, LLC (Chimney Rock) created a syndicated partnership and acquired property. A charitable conservation easement deduction was claimed for tax year 2017. The IRS filed a Notice of Final Partnership Administrative Adjustment (FPAA) on August 26, 2021, with tax matters partner Ornstein-Schuler, LLC (OS). The FPAA denied the charitable deduction, assessed a 75% civil fraud penalty, a 40% gross valuation misstatement penalty and various 20% penalties. None of the Putative Participants filed a motion under Rule 245(b). Following trials in similar cases, OS began to discuss a settlement with the IRS of 34 cases for which it was the tax matters partner. On January 26, 2024, the IRS offered to settle the matter with a disallowance of the noncash charitable contribution and reduction of all penalties to a 10% penalty under Section 6662(h). OS agreed to the settlement terms.

The IRS filed a Motion for Entry of Decision. OS agreed but did not "certify that no party objects to the granting of Respondent's Motion for Entry of Decision."

In late May of 2024, the Putative Participants filed Motions to Participate. They claimed that OS was the "target of a federal grand jury investigation, has an unwaivable conflict of interest and therefore cannot continue to represent [Chimney Rock] in this case."

The Putative Participants are indirect partners who own 5.77% of Chimney Rock. OS argued their Motion to Participate should be denied. An evidentiary hearing was held on September 19, 2024. Counsel for the Putative Participants indicated they would like to have access to the evidence and attempt to obtain a better settlement from the IRS. The IRS indicated that if the motions were granted, it would "try the entire case on the merits and it will not just affect the [Putative Participants] …it will affect all partners."

The Tax Court noted the basic question is whether the Putative Participants with approximately 6% interest should be allowed to take control of the entire litigation. Counsel for the Putative Participants indicated the IRS is attempting to "hold hostage the taxpayers and the Court to any Settlement."

Under Section 6226(c)(2) the Putative Participants had two years to seek to participate. They failed to take action until the proposed settlement was approaching completion. The Tax Court noted that a substantial showing is required for granting leave to participate under Rule 248(b). A substantial showing is required in order to reduce the opportunity for a partner to come in and disrupt a proposed settlement.

The Putative Participants have not made a substantial showing. If the Tax Court were to allow any minority partners to intervene at the point of settlement then it would necessitate trying many of the cases that otherwise would be settled. It also would "force the other owners to confront not only the hazards of litigation, but also possibly cost accompanying such litigation."

Because the Putative Participants failed to timely file their request to participate, the Tax Court determined they would not be qualified to participate. The court rejected other arguments made by the Putative Participants and denied their motions.

Applicable Federal Rate of 5.0% for May: Rev. Rul. 2025-10; 2025-19 IRB 1 (16 April 2025)

The IRS has announced the Applicable Federal Rate (AFR) for May of 2025. The AFR under Sec. 7520 for the month of May is 5.0%. The rates for April of 5.0% or March of 5.4% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2025, pooled income funds in existence less than three tax years must use a 4.0% deemed rate of return. Charitable gift receipts should state, “No goods or services were provided in exchange for this gift and the nonprofit has exclusive legal control over the gift property.”