Anatomy of a Disaster Under the Internal Revenue Code

75 Pages Posted: 6 Sep 2005

See all articles by Francine J. Lipman

Francine J. Lipman

University of Nevada, Las Vegas - William S. Boyd School of Law


In October 2003, California experienced record-breaking wildfires. The devastation from this catastrophic disaster was pervasive and staggering. The raging fires instantly turned several thousand homes and businesses together with the everyday and precious stuff of life into ashes. Thousands of families lost everything except the clothes on their backs. While the nation and the survivors were amazed that few lives were lost, the rebuilding process was and continues to be overwhelming. In addition to the emotional, physical, and financial demands of rebuilding, the tax consequences can be costly, complicated and unforeseen.

This article provides a systematic primer of the tax consequences of a disaster and the relief provisions under the Internal Revenue Code. The format of the article follows a fictitious family through the tragedy of the 2003 Southern California wildfires. The events facing the family are derived from comprehensive government data, newspaper accounts and interviews of insurance agents, federal government representatives, victims of the fire and nonprofit relief workers. Through this format, the article provides a detailed outline of the many different issues facing the victims of any disaster and their tax implications. Tax issues from reimbursement for immediate shelter, food, clothing, medical treatment and other needs to longer-term requirements for replacing homes, businesses, and the multitude of lost contents are carefully explained and exemplified. While the article follows the California wildfires from the first day of the fires through the rebuilding process, the tax issues analyzed apply to any U.S. disaster, including hurricanes, tornadoes, earthquakes, and terrorism.

Keywords: Disaster relief, casualty losses, casualty gains, net operating losses, involuntary conversions, presidentially declared disasters, disaster relief payments

JEL Classification: H24, H25, H54, H52, H82, I32, J19, K39

Suggested Citation

Lipman, Francine J., Anatomy of a Disaster Under the Internal Revenue Code. Florida Tax Review, Vol. 6, p. 955, 2005, Available at SSRN:

Francine J. Lipman (Contact Author)

University of Nevada, Las Vegas - William S. Boyd School of Law ( email )

4505 South Maryland Parkway
Box 451003
Las Vegas, NV 89154
United States

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