165(i) & Disaster-Related Deductions

By CSG Staff

With so many ESOP-owned companies in the food and hospitality industries, we wanted to highlight a federal tax provision that’s taken-on out-sized importance in 2020. 

Under § 165(i) of the Internal Revenue Code:

“any loss occurring in [a] disaster area and attributable to a federally declared disaster may, at the election of the taxpayer, be taken into account for the taxable year immediately preceding the taxable year in which the disaster occurred.”

When President Trump declared a nationwide emergency concerning the Coronavirus on March 13, 2020, Code Section 165(i) was put in play for virtually all private business owners. As a result, all qualifying losses can be counted in the 2019 tax year.

Although many may benefit from this deduction, it has particular resonance for restaurants, hotels, and food/beverage producers who are saddled with unsaleable inventory and spoiled ingredients. Items sold at a loss, donated, or destroyed – and not reimbursed by insurance or other means – may qualify. The provision may also cover losses due to worthless or impaired securities, store and facility closures, and the abandonment of pending, capitalized transactions.

Qualified losses are further described in the IRS From 4684 instructions.

As previously mentioned, the federal filing deadline for companies and individuals, as well as associated deadlines for employee stock ownership plan-owned companies, has been extended to July 15, 2020.

Please consult your tax or legal advisors if you have questions about 165(i).  Our team is also available as an added resource.  Feel free to email (info@csgpartners.com), call (212.443.5500), or schedule a meeting online.