Dear Retail Clients and Friends,
Like many across the globe, we have seen the heartbreaking destruction and loss caused by the recent devastating hurricanes. Now that some affected areas are beginning to move beyond the initial concern for safety and security, many of our retail clients face unusual legal issues and have questions regarding environmental, tax, insurance coverage, and other issues in the aftermath of these storms. This edition of Retail Did You Know? provides some retail-specific thoughts on these areas.
For retail companies affected by these natural disasters, it is important to protect your insurance assets by taking immediate steps. The following checklist may be of assistance:
Due to flooding and extreme winds, retailers in affected areas may find that their property is covered with potentially hazardous materials. In addition, some retailers may have solid or hazardous materials onsite that may have been released.
Certain wastes and debris that may originate from outside retail stores due to the storms require extra care in handling. These wastes include potentially dangerous or hazardous wastes such as
In addition, the retail sector contains a very large number of diverse products. Certain retail stores may contain waste that is regulated under a federal or state statute as hazardous wastes (e.g., certain household cleaners and automotive products), solid wastes (e.g., garbage or refuse), or special wastes (e.g., waste tires, antifreeze, or batteries).
There are exceptions, releases from liability, and relaxation of standards that are often available in a natural disaster. For example, the Resource Conservation and Recovery Act (RCRA) generally does not require entities to obtain permits for treatment or containment activities in response to discharges of hazardous waste; the imminent threat of a discharge to hazardous waste; or an immediate threat to human health, public safety, property, or the environment from explosive materials. 
If you have concerns about the ability to meet environmental responsibilities, it is important to document your conclusions and contact the US Environmental Protection Agency (EPA) or your state environmental agency if you believe that it is likely that you are unable to meet your obligations. In particular, we recommend the following steps:
As with insurance, our environmental team is ready to assist at any time to talk you through these steps and liaise with local and federal officials.
Tax Deductions for Retailers
Retailers should be aware of any deductions that they may be able to claim on their tax returns as a result of damage or loss to business property. In general, for federal income tax purposes, corporation and non-corporation taxpayers may deduct losses of property used in a trade or business or profit-seeking activities, including those attributable to property destroyed in a natural disaster. Where business property is partially destroyed, the amount of the loss that can be deducted is the lesser of the adjusted basis of the property and the decline in fair market value due to the casualty. Where business property is totally destroyed and the fair market value immediately before the casualty is less than its adjusted basis, a deductible loss is allowed up to the property’s adjusted basis. For losses subject to reimbursement (including by insurance), the reimbursement (or estimated reimbursement) reduces the amount of deductible loss. If the actual reimbursement ultimately received differs from the estimated reimbursement previously taken into account for tax purposes, the taxpayer may have to adjust its tax returns for the tax years in which the actual reimbursement was received to reflect this.
In general, taxpayers claiming a loss must deduct the loss in the year that it occurred. However, in cases where a taxpayer claims a loss due to a federally declared disaster, as is the case with Hurricanes Harvey, Irma, and Maria, the taxpayer can elect to deduct the loss for the tax year immediately preceding the tax year in which the loss occurred. This election may result in lower taxes for the preceding year, which may produce or increase a cash refund.
Retailers will need to substantiate the amount of loss that they take as a deduction. Generally, taxpayers must be able to show the type of casualty and when it occurred, that the loss was directly caused by the casualty, that they owned the property, and whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. If records to support the loss deduction are destroyed or lost, the taxpayer may have to reconstruct them. For example, to substantiate inventory losses, taxpayers should attempt to reconstruct their records by obtaining invoices from their suppliers, preferably dating back at least one calendar year. For losses to furniture and fixtures, taxpayers should sketch an outline of the business location and fill in the details of the sketches to show where these assets were located. For further details on best practices to substantiate losses where records are destroyed or lost due to a disaster, retailers should feel free to contact one of the Morgan Lewis lawyers listed below.
Tax Return Filing and Payment Extensions
The Internal Revenue Service (IRS) has provided businesses, including retailers, affected by Hurricanes Harvey and Irma with federal tax return filing and payment deadline extensions. For retailers affected by Hurricane Harvey, the IRS will postpone tax return filing and payment deadlines occurring on or after August 23, 2017 until January 31, 2018. For retailers affected by Hurricane Irma, the IRS will postpone tax return filing and payment deadlines occurring on or after September 4, 2017 for retailers in Florida and September 5, 2017 for retailers in Puerto Rico and the Virgin Islands until January 31, 2018. Retailers with an IRS address of record located in areas designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual assistance automatically qualify for the extension. However, if a retailer receives a late filing or payment penalty notice that has a filing, payment, or deposit due date falling within the extension period, the taxpayer must contact the number provided in the notice to have the penalty abated. Retailers in areas that are later added by FEMA as qualifying for individual assistance will also automatically receive the extension. Retailers that are located outside of a designated area but that have necessary records needed to meet deadlines located in a designated area may qualify for the extension, but they must contact the IRS directly at +1.866.562.5227 to determine eligibility for relief.
For eligible businesses, the extension covers the October 31, 2017 deadline for filing quarterly payroll and excise tax returns. Additionally, businesses that received filing extensions have additional time to file, including calendar-year partnerships with 2016 extensions that end on September 15, 2017 and calendar-year tax-exempt organizations with 2016 extensions that end on November 15, 2017. Similarly, for businesses affected by Hurricane Irma, the IRS will waive late-deposit penalties for federal payroll and excise tax deposits that would normally be due during the first 15 days of the disaster period.
For the most up-to-date information on eligibility for relief and on return or payment actions that may qualify for the extension, or for more guidance, our tax lawyers are available to assist you at any time.
We can assist our clients to better understand the impact of the recent catastrophic hurricanes and how they may impact your retail operations. We are able to leverage our offices in Houston and Miami and our cross-practice retail team to quickly respond to and provide practical advice for our retail clients on these and other issues arising from these natural disasters.
If you have any questions or would like more information on the issues discussed in this Retail Did You Know?, please reach out to your Morgan Lewis contact, the article authors, or any of our retail team leaders:
Retail Team Leaders
Gregory T. Parks (Philadelphia)
Anne Marie Estevez (Miami)
Christina E. Melendi (New York)
Elizabeth B. Herrington (Chicago)
Christina Vitale (Houston)
Brian Ercole (Miami)
Ezra D. Church (Philadelphia)
Brad Nes (Washington)
Christopher Amandes (Houston)
Conrad Bolston (Washington)
Casey August (Philadelphia)
Ester Lee (Philadelphia)
 40 C.F.R. §§ 264.1(g)(8); 265.1(c)(11); 270.1(c)(3).