Eastern Iowan lawmakers seek to waive tax penalties, interest for 2008 disaster victims

By James Q. Lynch 

The Gazette

DES MOINES – Eastern Iowa lawmakers continue to hold out hope for a break for 2008 disaster victims who could owe an average of $800 because of the way they filed their state income taxes.

House File 2088 would waive any penalties and interest for disaster victims who claimed an enhanced deduction for casualty losses that the federal government allowed. However, for the first time in nearly 30 years, the state didn't couple its tax code with the federal government the taxpayers that claimed the deduction on their Iowa income tax returns were required to file amended returns removing the deduction and in some cases, paying or owing penalties and interest, Jim McNulty of the Department of Revenue told a subcommittee of the House Ways and Means Committee Wednesday.

(See related post at: http://thegazette.com/local-news/2010/03/10/iowa-not-likely-to-couple-with-federal-tax-code)

Reps. Tyler Olson, D-Cedar Rapids, and Dawn Pettengill, R-Mount Auburn, said retroactively coupling with the federal tax code should be a priority for the Legislature.

It should be a priority of our budget,” Olson said, noting Gov. Chet Culver included $8.8 million in his budget for coupling.

And regardless of whether the Legislature couples or not, Olson said HF 2088 is a priority because “there is no reason taxpayers should pay a penalty for our action.”

The bill applies only to penalties and interest, which the revenue department has little or no authority to waive.

The state revenue department estimates 11,000 Iowans are affected by the decision not to couple. The average amount involved is $800.

Their penalty and interest, which HF 2088 would waive, would be $211,000, McNulty said.