Tax Relief for the Polar Vortex?
By Benjamin Brookstone, Staff Contributor
As winter draws to a close and the ever-sunny tax season nears, it’s time to assess how we fared in the cold once more. I will remember this winter for the night of January 7th. I was leaving dinner with friends and, unsurprisingly, it was cold when I walked outside. Except this time it was really cold, and the cold had a name: the “polar vortex.” At first, I thought this insidious phenomenon was another invention of the pun-happy Northeast, like “Snowpocalypse” in 2009. Little did I know, the “polar vortex” is real thing.
The polar vortex is a low-pressure area in the stratosphere that does not produce the reasonably-minded weather of the troposphere we are accustomed to. This semi-permanent system usually sits atop Northern Canada, Siberia, and Greenland. There is a reason Greenland has a town named “North Ice.”
But this year, the polar vortex decided to pay us a visit. Why? Every year there are distortions in the jet steam that locks in cold air around the poles. But this year, the distortion was more widespread and more bitter than usual. The jet stream drooped, widening a now misshapen circle. As the stream dipped into the United States, it locked in cold air further south than usual and we experienced wind patterns that normally encircle the poles. The vortex extended as far south as Memphis and Atlanta this year, catching many off guard. It’s not every winter that icicles hang from oranges in a Florida grove.
“In the case of extreme weather or other natural events, [Section 165 of the Internal Revenue Code] covers losses that occur with ‘suddenness comparable to that caused by fire, storm or shipwreck’.”
Luckily for those who suffered damage, there may be some relief available in the form of a casualty loss deduction in this year’s tax return. This year’s deduction may be especially important to taxpayers who spent much more than anticipated to keep warm. Section 165 of the Internal Revenue Code provides taxpayers with a deduction for any loss sustained during the taxable year that is not compensated for by insurance. Section 165 is designed to provide relief in case the taxpayer has suffered losses resulting from theft, capital assets, natural disasters, and more. In the case of extreme weather or other natural events, the Code covers losses that occur with “suddenness comparable to that caused by fire, storm or shipwreck.” The loss must be extraordinary–termite damage won’t do, although the Code has no way of distinguishing a mutant termite from one that is merely virile. The taxpayer, as in Blackman v. Commissioner, 88 T.C. 677 (1987), also cannot have caused the damage. The court denied relief in Blackman, finding that the taxpayer had been grossly negligent when he burned down his home by accident when trying to burn his estranged wife’s clothes.
Some taxpayers may have suffered significant damage to their homes and will be submitting claims to their insurance. Insurers may try to classify the vortex as multiple “occurrences” to increase the number of deductibles that apply. Taxpayers can combat that interpretation by pointing to meteorological data: the freeze was caused by a single distortion of the jet stream that normally encircles the poles. The vortex expanded southward, causing an unusually intense and prolonged freeze. All damage resulting from this event, whether property damage from frozen pipes or the loss of business income, should be covered by the casualty loss provision under the Code. Taxpayers should demand relief from insurance and, if made not whole, pursue the casualty loss deduction under the Internal Revenue Code.