Tax Provisions to Assist with Disaster Recovery

Congressional research reportFeb 6, 2013

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Tax Provisions to Assist with Disaster

Recovery

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February 6, 2013

Congressional Research Service

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R42839

CRS Report for Congress

Prepared for Members and Committees of Congress

Tax Provisions to Assist with Disaster Recovery

Summary

Relief after a natural or man-made disaster may come from what many might consider an

unlikely source: the Internal Revenue Code (IRC). The IRC includes several tax relief provisions

that apply to affected taxpayers. Some of these provisions are permanent. The following are

among the permanent provisions discussed in this report:

•

casualty loss deductions, IRC Section 165;

•

exemption from taxation for disaster relief payments to individuals, IRC

Section 139;

•

exemption from taxation for certain insurance payments, IRC Section 123; and

•

deferral of gain from the involuntary conversion of homes destroyed or damaged

by a disaster, IRC Section 1033.

In recent years, Congress has enacted tax legislation generally intended to assist victims of

specific disasters; as a result, these laws were temporary in nature. One act, however, provided

more general, but still temporary, relief for any federally declared disaster occurring prior to

January 1, 2010. The acts providing temporary relief include the following:

•

The Job Creation and Worker Assistance Act of 2002, P.L. 107-147, which

provided tax benefits for areas of New York City damaged by the terrorist attacks

of September 11, 2001;

•

The Katrina Emergency Tax Relief Act of 2005 (KETRA), P.L. 109-73, which

provided tax relief to assist the victims of Hurricane Katrina in 2005;

•

The Gulf Opportunity Zone (GO Zone) Act of 2005, P.L. 109-135, which

provided tax relief to those affected by Hurricanes Katrina, Rita, and Wilma in

2005;

•

The Food, Conservation, and Energy Act of 2008 (2008 Farm Bill), P.L. 110-234,

which provided tax relief intended to assist those affected by severe storms and

tornados in Kansas in 2007; and

•

The Heartland Disaster Tax Relief Act of 2008, P.L. 110-343, which provided tax

relief to assist recovery from both the severe weather that affected the Midwest

during the summer of 2008 and Hurricane Ike. This act also included general

disaster tax relief provisions that applied to federally declared disasters occurring

before January 1, 2010.

This report provides a basic overview of existing, permanent provisions that benefit victims of

disasters, as well as past, targeted legislative responses to particular disasters. The relief is

discussed without examining either the qualifications for or the limitation on claiming the

provisions’ benefits. In light of Hurricane Sandy, this report is designed to help Congress identify

previous legislative responses to recent disasters.

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Tax Provisions to Assist with Disaster Recovery

Contents

Permanent Provisions ...................................................................................................................... 2

Disaster Assistance Payments to Individuals............................................................................. 2

Certain Insurance Payments ...................................................................................................... 2

Casualty Loss, Involuntary Conversion, Etc. ............................................................................ 3

IRS Authority to Suspend Deadlines ......................................................................................... 3

Underpayment of Income Tax ................................................................................................... 3

Retirement Plan Rollovers ......................................................................................................... 3

General Provisions That Have Recently Expired ............................................................................ 4

Provisions Applicable to Federally Declared Disasters Occurring Prior to January 1,

2010 ........................................................................................................................................ 4

Casualty Losses ................................................................................................................... 4

Expensing ............................................................................................................................ 5

Net Operating Losses .......................................................................................................... 5

Bonus Depreciation ............................................................................................................. 6

Mortgage Revenue Bonds ................................................................................................... 6

Other Recently Expired General Provisions .............................................................................. 7

Expensing of Environmental Remediation Costs ................................................................ 7

Charitable Contributions of Inventory ................................................................................ 7

Provisions Targeting Specific Disasters ........................................................................................... 8

Involuntary Conversions ........................................................................................................... 8

Discharge of Indebtedness ......................................................................................................... 9

Retirement Plan Distributions ................................................................................................... 9

Employment Relief .................................................................................................................. 10

Work Opportunity Tax Credit ............................................................................................ 10

Retention Credit ................................................................................................................ 11

Employer-Provided Housing ............................................................................................. 11

Bonds ....................................................................................................................................... 11

Tax-Exempt Bonds ............................................................................................................ 11

Tax Credit Bonds ............................................................................................................... 12

Gulf Coast Recovery Bonds .............................................................................................. 12

Charitable Giving Incentives ................................................................................................... 12

Limits on Charitable Deductions....................................................................................... 12

Housing Exemption ........................................................................................................... 13

Mileage Rate and Reimbursement .................................................................................... 13

Leasehold Improvements......................................................................................................... 14

Credit Computations ................................................................................................................ 14

Treasury Authority to Make Adjustments Relating to Status .................................................. 14

Education Credits .................................................................................................................... 14

Low-Income Housing Tax Credit ............................................................................................ 15

Rehabilitation Credit ............................................................................................................... 15

New Markets Tax Credit.......................................................................................................... 16

Small Timber Producers .......................................................................................................... 16

Public Utility Losses................................................................................................................ 16

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Tax Provisions to Assist with Disaster Recovery

Tables

Table A-1. Comparison of Temporary Provisions Contained in Prior Acts ................................... 17

Appendixes

Appendix. Comparison Among Laws ............................................................................................ 17

Contacts

Author Contact Information........................................................................................................... 19

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Tax Provisions to Assist with Disaster Recovery

he Internal Revenue Code (IRC) includes several permanent provisions that become

relevant when taxpayers are affected by disasters. For example, individuals are generally

not taxed on disaster relief payments, and taxpayers whose homes are destroyed by

disasters may be able to defer any gain arising from an involuntary conversion.

In recent years, Congress has enacted temporary tax legislation intended to assist victims of

disasters. Most often, these temporary provisions applied to specific, identified disasters (e.g.,

Hurricane Katrina). However, in 2008, as part of legislation targeting specific disasters, Congress

also enacted temporary provisions that applied generally to federally declared disasters occurring

prior to January 1, 2010.1 The following is a list of the primary laws that have provided relief:

•

The Job Creation and Worker Assistance Act of 2002 (Job Creation Act), P.L.

107-147, which provided tax benefits for areas of New York City damaged by the

terrorist attacks of September 11, 2001;

•

The Katrina Emergency Tax Relief Act of 2005 (KETRA), P.L. 109-73, which

provided tax relief intended to assist businesses and individuals affected by

Hurricane Katrina in 2005 and permanently extended the authority of the Internal

Revenue Service (IRS) to postpone certain deadlines;

•

The Gulf Opportunity Zone Act of 2005 (GO Zone Act), P.L. 109-135, which

provided tax relief intended to assist businesses and individuals affected by

Hurricanes Katrina, Rita, and Wilma in 2005;

•

The Food, Conservation, and Energy Act of 2008 (2008 Farm Bill), P.L. 110-234,

which provided tax relief intended to assist businesses and individuals affected

by severe storms and tornados in Kansas in 2007;2

•

The Heartland Disaster Tax Relief Act of 2008 and other provisions in P.L. 110343 (Heartland Act), which provided tax relief intended to assist with the

recovery from the severe weather that affected the Midwest during the summer of

2008 and Hurricane Ike,3 as well as including some general disaster tax relief

provisions for federally declared disasters occurring prior to January 1, 2010.4

This report is intended to assist Congress by identifying provisions that have been enacted to

respond to past disasters. As such, it provides only a basic overview of the permanent and

temporary provisions. It does not discuss the provisions’ qualifications, limitations, and deadlines.

For example, some of the laws distinguished between the areas the President determined

warranted only public assistance under the Stafford Act, and those areas determined to warrant

individual or individual and public assistance, with the latter areas eligible for additional benefits,

P.L. 110-343, Div. C (“Tax Extenders and Alternative Minimum Tax Relief Act of 2008”), Title VII, Subtitle B.

P.L. 110-234, Title XV (“The Heartland, Habitat, Harvest, and Horticulture Act of 2008”), Subtitle C, Part III,

§15345.

P.L. 110-343, Div. C (“Tax Extenders and Alternative Minimum Tax Relief Act of 2008”), Title VII, Subtitle A. The

act also imposed a permanent requirement that §501(c)(3) charitable organizations report information on their disaster

relief activities and contributions on the annual information return (Form 990) filed with the IRS. See id at §703

(codified at 26 U.S.C. §6033(b)(14)).

P.L. 110-343, Div. C (“Tax Extenders and Alternative Minimum Tax Relief Act of 2008”), Title VII, Subtitle B.

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Tax Provisions to Assist with Disaster Recovery

and these types of distinctions are not noted in the report.5 The report makes no attempt to

evaluate the wisdom, efficacy, or fairness of any of the provisions.

The report is divided into three sections: (1) selected permanent disaster tax provisions; (2)

temporary provisions that applied generally to disasters; and (3) temporary provisions targeting

specific disasters. The Appendix contains a table that indicates which temporary provisions were

included in each act.

Permanent Provisions

Disaster Assistance Payments to Individuals

Section 1396 of the IRC exempts qualified disaster relief payments from the recipient’s income.

These include payments made to, or for the benefit of, an individual (1) to reimburse or pay for

reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a

qualified disaster; (2) to reimburse or pay for reasonable and necessary expenses incurred for the

repair or rehabilitation of a personal residence or repair or replacement of its contents to the

extent that the need for such repair, rehabilitation, or replacement is attributable to a qualified

disaster; and (3) by a federal, state, or local government in connection with a qualified disaster in

order to promote the general welfare. The exclusion applies only to expenses not compensated for

by insurance or otherwise.

A qualified disaster is one determined by the President to warrant federal assistance under the

Stafford Act and, for the third type of payment, a disaster determined by an appropriate federal,

state, or local authority to warrant government assistance.

Certain Insurance Payments

For a taxpayer whose principal residence is damaged or destroyed by storm or other casualty, or

who is denied access to the residence by governmental authorities because of the occurrence or

threat of occurrence of such a casualty, gross income does not include payments made under an

insurance contract to compensate or reimburse the individual for household living expenses

resulting from the loss of use or occupancy of the residence.7 This exclusion applies only to the

extent the amount received does not exceed the amount by which the actual living expenses

incurred during the period of non-use or occupancy exceed the normal living expenses that would

have been incurred. In other words, the excluded amount generally represents expenses actually

incurred due to the casualty for renting housing and paying extraordinary expenses for such

things as food and transportation.

See, e.g., P.L. 110-343, Div. C, Title VII, Subtitle A, §702(b).

26 U.S.C. §139 was established by the Victims of Terrorism Relief Act of 2001, P.L. 107-134 §111. That law

included several tax relief provisions for victims of terrorism. Provisions of the law are not included in this report

because they do not address disaster recovery. For additional information on the law, please refer to Technical

Explanation of the “Victims of Terrorism Tax Relief Act of 2001,” as Passed by the House and the Senate on December

20, 2001. JCT, JCX-93-01, December 21, 2001 available at https://www.jct.gov/publications.html?func=startdown&

id=1908.

26 U.S.C. §123; 26 C.F.R. §1.123-1.

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Tax Provisions to Assist with Disaster Recovery

Casualty Loss, Involuntary Conversion, Etc.

Several provisions may apply in disaster situations, such as the provisions that permit taxpayers

to deduct casualty losses and defer gain on involuntary conversions. Although the general

provisions are permanent,8 Congress has enacted special temporary rules regarding aspects of

these provisions in the Job Creation Act, KETRA, the GO Zone Act, and the Heartland Act. For

this reason, these provisions are discussed below (see “Casualty Losses,” “Involuntary

Conversions”).

IRS Authority to Suspend Deadlines

The Internal Revenue Service (IRS) has the express statutory authority to postpone tax-related

deadlines for certain taxpayers, including those affected by a federally declared disaster.9 These

deadlines include those for filing returns and making payments for income, gift, and estate taxes.

Prior to KETRA, income taxes withheld at source and employment taxes were explicitly excluded

from this authority, and excise taxes were not mentioned. KETRA permanently granted the IRS

the authority to postpone deadlines related to these taxes.10

Underpayment of Income Tax

An individual who underpays his or her estimated income tax is subject to a penalty equal to the

interest that would accrue on the underpayment, for the period of the underpayment.11 The IRS is

authorized to waive the underpayment penalty for underpayments due to casualty, disaster, or

other unusual circumstance if the imposition of the penalty would be inequitable and against good

conscience.12

Retirement Plan Rollovers

Rollover distributions from tax-deferred retirement plans and individual retirement accounts must

generally be transferred to an eligible plan within 60 days to avoid incurring income tax and

penalties.13 However, the Secretary of the Treasury (Secretary) has the statutory authority to

waive the 60-day period in hardship situations where failure to waive the deadline would be

against equity or good conscience.14 Events that could be considered hardships include casualties,

disasters, and other events beyond the reasonable control of the individual subject to the rollover

deadline.

See, e.g., 26 U.S.C. §§165 (casualty losses), 1033 (involuntary conversions).

26 U.S.C. §§7508, 7508A.

KETRA, P.L. 109-73, Title IV, §403. Additionally, KETRA and the GO Zone act mandated that the IRS use this

authority to extend deadlines to February 28, 2006. KETRA, P.L. 109-73, Title IV, §403; GO Zone, P.L. 109-135, Title

II, §201(a) (codified at 26 U.S.C. §1400S(c)).

26 U.S.C. §6654.

26 U.S.C. §6654(e)(3)(A).

26 U.S.C. §§402, 408.

26 U.S.C. §§402(c)(3)(B), 408(d)(3)(I).

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Tax Provisions to Assist with Disaster Recovery

General Provisions That Have Recently Expired

Provisions Applicable to Federally Declared Disasters Occurring

Prior to January 1, 2010

The Heartland Act contained several provisions that generally applied to federally declared

disasters declared after December 31, 2007, and before January 1, 2010.15 These provisions

created temporary rules for casualty losses, expensing, net operating losses, bonus depreciation,

and mortgage revenue bonds.

Additionally, the Heartland Act, KETRA, and the GO Zone Act sometimes created special rules

for these same provisions applicable to the specific disasters covered by those acts. These are

mentioned in the footnotes.

Casualty Losses

Taxpayers may deduct unreimbursed losses of property not connected to a trade or business when

the losses are from a casualty, such as a hurricane.16 In addition to losses from the actual damage

caused by the casualty, an individual may have a casualty loss if ordered by the state to demolish

or relocate the home and such order comes within 120 days of the federal declaration that the

location is a disaster area.

To determine the amount of the loss, two values are compared: decrease in fair market value

(FMV) as a result of the casualty and the taxpayer’s adjusted basis in the property (i.e., the cost of

the property with certain adjustments).17 The lower amount is the amount of the loss, subject to

several limitations: (1) the first $100 of each loss is not deductible and (2) only the aggregate

amount of the net loss (after applying the $100 limitation and offsetting casualty gains) that

exceeds 10% of adjusted gross income is deductible.

The deduction is generally claimed in the year of the loss. However, a loss in a federally declared

disaster area may be deducted in the year prior to the disaster.18

The Heartland Act made three changes for individuals affected by federally declared disasters

occurring prior to January 1, 2010: (1) it waived the 10% restriction; (2) it increased the standard

deduction by the amount of such losses (thus permitting individuals who did not itemize

deductions to deduct their losses); and (3) it increased the $100 floor to $500.19

Some, but not all, of these provisions applied to the 2008 Midwest storms and Hurricane Ike. P.L. 110-343, Div. C

(“Tax Extenders and Alternative Minimum Tax Relief Act of 2008”), Title VII, Subtitle B, §712. As discussed in this

report, the Heartland Act also provided special rules for these two disasters.

26 U.S.C. §165.

For a discussion of basis, see CRS Report RL34662, Tax Basis: What Is It? Why Is It Important?, by (name redacted).

26 U.S.C. §165(e).

Heartland Act, P.L. 110-343, Div. C, Title VII, Subtitle B, §706. Meanwhile, KETRA, the GO Zone Act, and the

2008 Farm Bill had waived the $100 and 10% floors for casualty losses from the disasters. KETRA, P.L. 109-73, Title

IV, §402; GO Zone Act, P.L. 109-135, Title II, §201(a) (codified at 26 U.S.C. §1400S(b); 2008 Farm Bill, P.L. 110234, Title XV, Subtitle C, Part III, §15345(a)(9). The Heartland Act had similarly waived the $100 limitation for the

(continued...)

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Tax Provisions to Assist with Disaster Recovery

Expensing

In general, capital expenditures must be added to a property’s basis rather than being expensed

(i.e., deducted in the current year). IRC Section 179 provides an exception so that a business may

expense the costs of certain property in the year it is placed in service. In general, the total cost of

the Section 179 property cannot exceed $125,000, and the deduction is decreased by one dollar

for every dollar that the total cost of all property the business placed in service during the year

exceeds $500,000—both numbers are adjusted for inflation. The Heartland Act increased the

Section 179 limitations by up to $100,000 and $600,000 for qualified disaster area property for

federally declared disasters occurring prior to January 1, 2010.20

The Heartland Act also added IRC Section 198A, which permits full expensing (subject to

depreciation recapture) of qualified expenditures for the abatement or control of hazardous

substances released on account of a federally declared disaster, the removal of debris or the

demolition of structures on business-related real property damaged by such a disaster, and the

repair of business-related property damaged by such a disaster.21 This provision only applied to

federally declared disasters occurring prior to January 1, 2010.22

Net Operating Losses

In general, a taxpayer’s net operating loss (NOL) may be carried back and deducted in the two tax

years before the NOL year, and then carried forward for up to 20 years after the NOL year.23

These methods are known as “carrybacks” and “carryovers,” respectively.

The carryback period is extended to three years for individuals who have a loss of property

arising from a casualty or theft.24 A three-year period also applies for small businesses and

farmers for NOLs attributable to federally declared disasters.25

The Heartland Act provided for a five-year carryback period for qualified losses from any

federally declared disaster occurring prior to January 1, 2010.26 For such disasters, it also

(...continued)

2008 Midwest storms. Heartland Act, P.L. 110-343, Div. C, Title VII, Subtitle B, §711.

Heartland Act, P.L. 110-343, Div. C, Title VII, Subtitle B, §711. The GO Zone Act and 2008 Farm Bill did the same

for qualifying property, while Job Creation Act increased the limitations by lesser amounts for New York Liberty Zone

property. GO Zone Act, P.L. 109-135, Title I, §101(a) (codified at 26 U.S.C. §1400N(e)); 2008 Farm Bill, P.L. 110234, Title XV, Subtitle C, Part III, §15345(a)(2); Job Creation Act, P.L. 107-147, Title III, §301(a) (codified at 26

U.S.C. §1400L(f)).

Heartland Act, P.L. 110-343, Div. C, Title VII, Subtitle B, §707. §702(d)(3), (4).

Meanwhile, the GO Zone Act, the 2008 Farm Bill, and the Heartland Act allowed taxpayers to expense 50% of

qualified clean-up costs for the removal of debris or the demolition of structures on business real property in the

applicable disaster zones. GO Zone Act, P.L. 109-135, Title I, §101(a) (codified at 26 U.S.C. §1400N(f)); 2008 Farm

Bill, P.L. 110-234, Title XV, Subtitle C, Part III, §15345(a)(3); Heartland Act, P.L. 110-343, Div. C, Title VII, Subtitle

A, §702(a)(1).

26 U.S.C. §172.

26 U.S.C. §172(b)(1)(F).

See id.

Heartland Act, P.L. 110-343, Div. C, Title VII, Subtitle B, §708 (codified at 26 U.S.C. §172(b)(1)(J)). The act also

provided similar rules for qualified Midwest disaster losses. Heartland Act, P.L. 110-343, Div. C, Title VII, Subtitle A,

§702(d)(6). The GO Zone Act and the 2008 Farm Bill had allowed NOLs from the disasters to be carried back for five

(continued...)

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Tax Provisions to Assist with Disaster Recovery

suspended the alternative minimum tax (AMT) provision that generally limits NOL deductions to

90% of alternative minimum taxable income.27

Bonus Depreciation

Taxpayers who acquire certain types of property may claim an additional depreciation amount

equal to 50% of the property’s adjusted basis for the year the property is placed in service.28 This

is commonly referred to as “bonus depreciation.” The Heartland Act provided a 50% bonus

depreciation provision for qualified property from a federally declared disaster occurring prior to

January 1, 2010.29

Mortgage Revenue Bonds

Mortgage revenue bonds are tax-exempt bonds used to finance below-market rate mortgages for

low and moderate-income homebuyers.30 In general, the homebuyers must not have owned a

residence for the past three years, and the houses’ costs may not exceed 90% of the average

purchase price for the area. However, for areas that are low-income or of chronic economic

distress, the three-year restriction does not apply and the purchase price limitation is increased to

110%.31

For individuals whose homes were declared unsafe or ordered to be demolished or relocated due

to a federally declared disaster occurring prior to January 1, 2010, the Heartland Act waived the

three-year restriction and increased the purchase price limitation from 90% to 110%.32 It also

permitted individuals whose homes were damaged by the disaster to treat the amount of ownerfinancing provided for home repair and construction as a qualified rehabilitation loan, limited to

$150,000 (the amount is generally limited to $15,000),33 which had the effect of waiving the

three-year requirement for such financing.

(...continued)

years. GO Zone Act, P.L. 109-135, Title I, §101(a) (codified at 26 U.S.C. §1400N(k)); 2008 Farm Bill, P.L. 110-234,

Title XV, Subtitle C, Part III, §15345(a)(4).

26 U.S.C. §56(d); Heartland Act, P.L. 110-343, Div. C, Title VII, Subtitle B, §708 (codified at 26 U.S.C. §56(d)(3).

26 U.S.C. §168(k). For information on bonus depreciation, see CRS Report RL31852, Section 179 and Bonus

Depreciation Expensing Allowances: Current Law, Legislative Proposals in the 113th Congress, and Economic Effects,

by (name redacted).

Heartland Act, P.L. 110-343, Div. C, Title VII, Subtitle B, §710 (codified at 26 U.S.C. §168(n)). The GO Zone Act

and the 2008 Farm Bill also provided a 50% bonus depreciation provision for qualified property, as well as granting the

Secretary the authority to suspend the deadline by which property must be placed in service, on a case-by-case basis,

for up to one year for taxpayers affected by the hurricanes. GO Zone Act, P.L. 109-135, Title I, §101(a) (codified at 26

U.S.C. §1400N(d)); 2008 Farm Bill, P.L. 110-234, Title XV, Subtitle C, Part III, §15345(a)(1); The Job Creation Act

had provided for 30% additional depreciation. Job Creation Act, P.L. 107-147, Title III, §301(a) (codified at 26 U.S.C.

§1400L(b)).

26 U.S.C. §143.

26 U.S.C. §143(d)(2)(A), (e)(5).

P.L. 110-343, §709. KETRA and the GO Zone Act temporarily removed the three-year requirement for qualifying

homes, as well as increasing the limitation on qualified home improvement loans from $15,000 to $150,000 for loans

used to repair hurricane damage. KETRA, P.L. 109-73, Title IV, §404; GO Zone Act, P.L. 109-135, Title I, §104.

26 U.S.C. §143(d)(2)(B).

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Tax Provisions to Assist with Disaster Recovery

Other Recently Expired General Provisions

In addition to the Heartland Act’s provisions that generally applied to any federally declared

disaster declared after December 31, 2007, and before January 1, 2010, other provisions in federal

law have provided temporary relief that were generally available (i.e., not restricted to specific

disasters).

Expensing of Environmental Remediation Costs

As mentioned above, capital expenditures must generally be added to the property’s basis rather

than being expensed (i.e., deducted in the current year). IRC Section 198 provided another

exception by allowing taxpayers to expense any qualifying environmental remediation costs paid

or incurred prior to January 1, 2012, for the abatement or control of hazardous substances at a

qualified contaminated site. Unlike the other expensing provisions discussed above (Sections 179

and 198A), Section 198 is not limited to federally declared disasters or specific disasters. The

provision was enacted as a temporary one and has been extended several times, but has now

expired.

The Heartland Act was among those laws that temporarily extended Section 198.34 The GO Zone

Act had also extended the provision, but only for those costs for contaminated sites in the GO

Zone, as well as treating petroleum products as a hazardous substance.35

Charitable Contributions of Inventory

In general, donors of food inventory who are not C corporations may only claim a charitable

deduction that equals their basis in the inventory (typically, its cost).36 C corporations may deduct

the lesser of (1) the basis plus 50% of the property’s appreciated value or (2) two times basis.

KETRA provided special rules that allowed donors of wholesome food inventory to benefit from

this enhanced deduction and allowed C corporations to claim an enhanced deduction for

donations of book inventory to public schools.37 Neither provision was limited to donations

related to the hurricane, but both were originally set to expire on December 31, 2005. The

provisions have been extended several times since then, including by the Heartland Act (as part of

its tax extenders package, rather than its disaster relief provisions).38 Most recently, both

provisions were extended through December 31, 2011.39

Heartland Act, P.L. 110-343, Div. C, Title III, §318.

GO Zone Act, P.L. 109-135, Title I, §101(a) (codified at 26 U.S.C. §1400N(g)).

IRC §170(e). For more information on the charitable contribution deduction, see CRS Report RL34608, Tax Issues

Relating to Charitable Contributions and Organizations, by (name redacted) and (name redacted).

KETRA, P.L. 109-73, Title III, §§305 (codified at 26 U.S.C. §170 (e)(3)(C)(iv)), 306 (codified at 26 U.S.C.

§170(e)(3)(D)(iv)).

Heartland Act, P.L. 110-343, Div. C, Title III, §§323, 324.

P.L. 111-312 (“Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010”), Subtitle C,

§§740(a), 741(a).

Congressional Research Service

Tax Provisions to Assist with Disaster Recovery

Provisions Targeting Specific Disasters

Involuntary Conversions

An involuntary conversion occurs when property is converted to money or other property because

of its complete or partial destruction, theft, seizure, or condemnation, or if it is disposed of under

threat of condemnation.40 An example of an involuntary conversion is when an individual

receives an insurance payment for damaged property. If the cash or property that was received is

worth less than the basis of the property that was converted, the taxpayer has a loss, which may

qualify for deduction under the casualty loss rules discussed above. If the cash or property

received is worth more than the basis of the property that was converted, then the taxpayer has

realized a gain, which may or may not be immediately includable in gross income (“recognized”).

There are no immediate tax consequences if the property is converted to property that is similar or

related in service or use (“similar property”).41 If, on the other hand, the property is involuntarily

converted to cash or dissimilar property, the taxpayer must recognize any gain unless purchasing

similar property within a certain time period. If the taxpayer purchases the replacement property

in a timely manner, an election is available that allows recognition of gain only to the extent that

the amount realized from the involuntary conversion exceeds the cost of the new property. The

time period is generally two years.

Taxpayers whose principal residence or any of its contents are involuntarily converted as a result

of a federally declared disaster qualify for three special rules.42 First, gain realized from the

receipt of insurance proceeds for unscheduled personal property (property in the home that is not

listed as being covered under the insurance policy) is not recognized. Second, any other insurance

proceeds received for the residence or its contents are treated as a common fund. If the fund is

used to purchase property that is similar or related in service or use to the converted residence or

its contents, then the owner may elect to recognize gain only to the extent that the common fund

exceeds the cost of the replacement property. Third, the replacement period for property

involuntarily converted as a result of a federally declared disaster is four years rather than two.

If a taxpayer’s business property is involuntarily converted as a result of a federally declared

disaster, then the taxpayer is not required to replace it with property that is similar or related in

service to the original property in order to avoid having to recognize gain on the conversion, as

long as the replacement property is still held for a type of business purpose.43 The replacement

period for business property is two years after the close of the first tax year in which any part of

26 U.S.C. §1033.

The taxpayer’s basis in the new property is the same as in the converted property; thus, he or she is able to defer

recognition of any gain until he or she sells or exchanges the new property.

26 U.S.C. §1033(h). Additionally, under 26 U.S.C. §121, individuals may exclude up to $250,000 ($500,000 if

married filing jointly) of gain from selling a principal residence if the taxpayer meets a use test (has lived in the house

for at least two years out of the last five years) and an ownership test (has owned the house, also for two years out of

the last five). If a taxpayer fails to meet the use test but experiences an unforeseen circumstance, the taxpayer may

claim a reduced exclusion. Unforeseen circumstances include the involuntary conversion of a residence and a natural or

man-made disaster (or act of war or terrorism) resulting in a casualty to a principal residence. See 26 C.F.R. §1.1213(e)(2).

26 U.S.C. §1033(h).

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Tax Provisions to Assist with Disaster Recovery

the conversion gain is realized (the replacement period for condemned business property is three

years).

The Job Creation Act, KETRA, the 2008 Farm Bill, and the Heartland Act increased the two-year

time period to purchase the replacement property to five years for property in the applicable

disaster area so long as substantially all of the use of the replacement property occurs in such

area.44

Discharge of Indebtedness

When all or part of a debt is forgiven, the amount of the cancellation is ordinarily included in the

income of the taxpayer receiving the benefit of the discharge.45 However, there are several

exceptions to this general rule. For example, no amount of the discharge is included in income if

the cancellation is intended to be a gift or is from the discharge of student loans for the

performance of qualifying services.46 There are also certain situations in which the taxpayer may

defer taxation, with the possibility of permanent exclusion, on income from the discharge of

indebtedness, such as if discharge occurs when the debtor is in Title 11 bankruptcy proceedings or

legally insolvent.47 Both KETRA and the Heartland Act included provisions that allowed victims

to exclude non-business debt forgiveness from income in certain conditions.

Victims of Hurricane Katrina were allowed to exclude non-business debt that was forgiven by a

governmental agency or certain financial institutions if the discharge occurred after August 24,

2005, and before January 1, 2007.48 Individuals were eligible for this benefit if (1) their principal

place of abode was in the core disaster area or (2) it was in the Hurricane Katrina disaster area

and they suffered an economic loss due to the hurricane. Individuals with certain tax attributes

(such as basis) were required to reduce them by the amount excluded from income, which has the

effect of deferring (rather than permanently eliminating) the tax on the cancelled debt.

For victims with a principal place of abode in a Midwestern disaster area, the Heartland Act

provided similar relief. However, if that home was in an area determined by the President to

warrant only public assistance, the individual also had to have suffered an economic loss due to

the severe weather.49

Retirement Plan Distributions

KETRA, the GO Zone Act, the 2008 Farm Bill, and the Heartland Act all provided relief relating

to retirement plan distributions. First, each act waived the 10% penalty that would otherwise

apply on early withdrawals made from a qualifying retirement plan50 if the individual’s principal

Job Creation Act, P.L. 107-147, Title III, §301(a) (codified at 26 U.S.C. §1400L(g)); KETRA, P.L. 109-73, Title IV,

§405; 2008 Farm Bill, P.L. 110-234, Title XV, Subtitle C, Part III, §15345(a)(10); Heartland Act, P.L. 110-343, Div. C,

Title VII, Subtitle A, §702(e)(5).

26 U.S.C. §61(a)(12).

26 U.S.C. §§102, 108.

26 U.S.C. §108(a).

KETRA, P.L. 109-73, Title IV, §401.

Heartland Act, P.L. 110-343, Div. C, Title VII, Subtitle A, §702(e)(4).

26 U.S.C. §72(t).

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place of abode was in the disaster area and the individual sustained an economic loss due to the

disaster.51 The distributions were required to occur within a specified time frame, and the

maximum amount that could be withdrawn without penalty was $100,000. Funds could be recontributed to a qualified plan over a three-year period and receive tax-free rollover treatment.

Additionally, with respect to any taxable portion of the distribution, the individual could include

one-third of such amount in gross income over the course of three tax years rather than including

the entire amount on the tax return for the year of distribution.

Additionally, the acts permitted individuals who had received qualifying distributions to buy or

construct a principal residence in the applicable disaster area, but were prevented from doing so

by the disaster, to re-contribute the funds to a qualified plan without tax consequences.52

Further, the acts increased the amount disaster victims could borrow from their retirement plans

without immediate tax consequences.53 Under current law, the maximum amount that may be

borrowed without being treated as a taxable distribution is the lesser of (a) $50,000, reduced by

certain outstanding loans or (b) the greater of $10,000 or 50% of the present value of the

employee’s nonforfeitable accrued benefits. For loans made during the applicable period, the acts

increased this to the lesser of (1) $100,000, reduced by certain outstanding loans, or (2) the

greater of $10,000 or 100% of the present value of the employee’s nonforfeitable accrued

benefits, as well as extending certain loan repayment dates by one year.54

Employment Relief

Work Opportunity Tax Credit

Generally, businesses that hire individuals from groups with high unemployment rates or special

employment needs, such as high-risk youths and veterans, may claim the work opportunity tax

credit.55 The credit may be claimed for the wages of up to $6,000 that were paid during the

employee’s first year. For an employee who worked at least 400 hours, the credit equals 40% of

his or her wages—thus, the maximum credit is $2,400. For an employee who worked from 120 to

399 hours, the credit equals 25% of his or her wages. The credit does not apply to wages paid

after December 31, 2012.

KETRA allowed businesses to claim the work opportunity credit on wages paid to certain

employees hired after Hurricane Katrina.56 Eligible employees were those who had a principal

place of abode in the core disaster area and either (1) were hired during the two-year period

KETRA, P.L. 109-73, Title I, §101; GO Zone Act, P.L. 109-135, Title II, §201(a) (codified at 26 U.S.C. §1400Q(a));

2008 Farm Bill, P.L. 110-234, Title XV, Subtitle C, Part III, §15345(a)(7); Heartland Act, P.L. 110-343, Div. C, Title

VII, Subtitle A, §702(d)(10).

KETRA, P.L. 109-73, Title I, §102; GO Zone Act, P.L. 109-135, Title II, §201(a) (codified at 26 U.S.C. §1400Q(b));

Heartland Act, P.L. 110-343, Div. C, Title VII, Subtitle A, §702(d)(10).

26 U.S.C. §72(p).

KETRA, P.L. 109-73, Title I, §103; GO Zone Act, P.L. 109-135, §201(a) (codified at 26 U.S.C. §1400Q(c));

Heartland Act, P.L. 110-343, Div. C, Title VII, Subtitle A, §702(d)(10).

26 U.S.C. §51. For more information, see CRS Report RL30089, The Work Opportunity Tax Credit (WOTC), by

(name redacted).

KETRA, P.L. 109-73, Title II, §201.

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beginning August 28, 2005, for a position in the area or (2) were displaced by the Hurricane and

are hired after August 27, 2005, and before January 1, 2006. The Job Creation Act provided

similar treatment for New York Liberty Zone business employees and certain employees outside

the zone.57

Retention Credit

KETRA, the GO Zone Act, the 2008 Farm Bill, and the Heartland Act all provided a temporary

retention credit for disaster-damaged businesses that continued to pay wages to their employees

who were unable to continue in their jobs after the storm had rendered the business currently

inoperable.58 Eligible employees were those whose principal place of employment was in the

applicable disaster area. The credit equaled 40% of the employee’s first $6,000 in wages paid

between the date the business became inoperable and the date it resumed significant operations at

that location (or the end of the first calendar year, whichever came first). The credits were

generally limited to those employers who employed no more than 200 employees per day during

the year before the disaster.

Employer-Provided Housing

Both the GO Zone Act and the Heartland Act excluded the value of certain employer-provided

housing, limited to $600 per month, from the employee’s income and allowed the employer to

claim a credit equal to 30% of that amount.59 Among other requirements, the employee must have

had a principal residence in the applicable disaster area and have performed substantially all

employment services for that employer in that area. The employer must have had a trade or

business located within the applicable disaster area.

Bonds

Tax-Exempt Bonds

Both the GO Zone Act and the Heartland Act temporarily allowed affected states to issue taxexempt bonds to finance (1) qualified activities involving residential rental projects,

nonresidential real property, and public utility property located in the disaster area and (2) belowmarket rate mortgages for low- and moderate-income homebuyers.60 Under the GO Zone Act, the

maximum amount of bonds that each state could issue was $2,500 multiplied by that state’s

population that was located in the GO Zone as determined prior to the date of Hurricane Katrina.

Under the Heartland Act, the maximum amount of bonds each state could issue was capped at

$1,000 multiplied by that state’s population in the disaster area, and the act expressly stated that

Job Creation Act, P.L. 107-147, Title III, §301(a) (codified at 26 U.S.C. §1400L(a)).

KETRA, P.L. 109-73, Title II, §202; GO Zone Act, P.L. 109-135, Title II, §201(a) (codified at 26 U.S.C. §1400R);

2008 Farm Bill, P.L. 110-234, Title XV, Subtitle C, Part III, §15345(a)(8); Heartland Act, P.L. 110-343, Div. C, Title

VII, Subtitle A, §702(d)(11).

GO Zone Act, P.L. 109-135, Title I, §103 (codified at 26 U.S.C. §1400P).

GO Zone Act, P.L. 109-135, Title I, §101(a) (codified at 26 U.S.C. §1400N(a)); Heartland Act, P.L. 110-343, Div. C,

Title VII, Subtitle A, §702(a)(1). The Heartland Act also allowed states affected by Hurricane Ike (Texas and

Louisiana) to issue bonds, capped at $2,000 multiplied by the portion of the state’s population in specified counties.

P.L. 110-343, Div. C, Title VII, Subtitle A, §704.

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the bonds would have to be designated by the appropriate state authority on the basis of providing

assistance to where it was most needed. The Job Creation Act, meanwhile, allowed New York to

issue up to $8 billion (divided equally between the state and New York City) in tax-exempt bonds

to finance qualified activities involving residential rental projects, nonresidential real property,

and public utility property located in the disaster zone.61 The Job Creation Act and the GO Zone

Act also allowed one additional advance refunding of qualifying bonds that were issued by those

states.62

The GO Zone Act, the 2008 Farm Bill, and the Heartland Act allowed operators of low-income

residential rental projects financed by IRC Section 142(d) bonds to rely on the representations of

displaced individuals regarding their income qualifications so long as the tenancy began within

six months of the displacement.63

Tax Credit Bonds

Both the GO Zone Act and the Heartland Act permitted affected states to issue tax credit bonds to

pay the principal, interest, or premiums on qualified governmental bonds or to make loans to

political subdivisions to make such payments.64 Bondholders may claim a credit based on the

product of a credit rate and the bonds’ outstanding face amount. The bonds were required to be

issued within a certain time period and could not have a maturity date beyond two years, among

other requirements. Further, each state was capped in the amount of bonds it could be issued—for

example, under the Heartland Act, the maximum amount of bonds that could be issued by states

with disaster area populations of at least 2 million was $100 million; the cap was $50 million for

states with disaster area populations between 1 million and 2 million; and the other states could

not issue any bonds. Bonds could not be used for certain activities (e.g., golf courses).

Gulf Coast Recovery Bonds

The GO Zone stated that it was the sense of Congress that the Treasury Secretary designate at

least one series of bonds as Gulf Coast Recovery Bonds.65

Charitable Giving Incentives

Limits on Charitable Deductions

Taxpayers are generally permitted to deduct contributions made to 501(c)(3) charitable

organizations, subject to various limitations.66 Individuals may not claim a charitable deduction

Job Creation Act, P.L. 107-147, Title III, §301(a) (codified at 26 U.S.C. §1400L(d)).

Job Creation Act, P.L. 107-147, Title III, §301(a) (codified at 26 U.S.C. §1400L(e)); GO Zone Act, P.L. 109-135, Title I,

§101(a) (codified at 26 U.S.C. §1400N(b)).

GO Zone Act, P.L. 109-135, Title I, §101(a) (codified at 26 U.S.C. §1400N(n)); 2008 Farm Bill, P.L. 110-234, Title

XV, Subtitle C, Part III, §15345(a)(5); Heartland Act, P.L. 110-343, Div. C, Title VII, Subtitle A, §702(a)(1).

GO Zone Act, P.L. 109-135, Title I, §101(a) (codified at 26 U.S.C. §1400N(l)); Heartland Act, P.L. 110-343, Div. C,

Title VII, Subtitle A, §702(d)(7). For information on tax credit bonds, see CRS Report R40523, Tax Credit Bonds:

Overview and Analysis, by (name redacted).

GO Zone Act, P.L. 109-135, Title III, §301.

26 U.S.C. §170.

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that exceeds 50% of their “contribution base” (adjusted gross income with certain adjustments)

and corporations may not claim a deduction that exceeds 10% of their taxable income with

certain adjustments. Any excess contributions may generally be carried forward for five years.

KETRA and the GO Zone Act temporarily suspended the 50% and 10% limitations for cash

contributions.67 For individuals, the deduction could not exceed the amount that the contribution

base exceeded other charitable contributions. For corporations, the deduction was only allowed

for contributions used for hurricane relief efforts and could not exceed the amount that taxable

income exceeded other contributions. The acts also suspended the overall limitation on itemized

deductions. The Heartland Act provided similar rules for donations for Midwest disaster relief.68

Housing Exemption

Both KETRA69 and the Heartland Act70 provided tax relief to those who provided free housing to

those who had been displaced by the storms. Individuals could claim additional personal

exemptions of $500 each for up to four displaced people who they housed for at least 60

consecutive days. These exemptions could be claimed in both the year of the disaster and the next

year; however, no person could qualify the taxpayer for the exemption in both years. Among

other requirements, the displaced person must have had a principal place of abode in the disaster

area; if the home was not in the core disaster area, then the person must have been displaced due

to either storm damage to the home or evacuation caused by the storm.

Mileage Rate and Reimbursement

Generally, individuals who use their personal vehicles for charitable purposes may claim a

deduction based on the number of miles driven. The amount is set by statute at 14 cents per

mile.71

KETRA and the Heartland Act each temporarily increase the charitable mileage rate to 70% of

the standard business mileage rate if the vehicle was used for hurricane or Midwest disaster

relief.72 The standard business mileage rate is periodically set by the IRS and is 55.5 cents per

mile for 201273 and 56.5 cents per mile for 2013.74

Additionally, both acts provided a temporary exclusion from a charitable volunteer’s gross

income for any qualifying mileage reimbursements received from the charity for the operating

expenses of the volunteer’s passenger automobile for such disaster relief.75

KETRA, P.L. 109-73, Title III, §301; GO Zone Act, P.L. 109-135, Title II, §201(a) (at 26 U.S.C. §1400S(a)).

Heartland Act, P.L. 110-343, Div. C, Title VII, Subtitle A, §702(d)(12).

KETRA, P.L. 109-73, Title III, §302.

Heartland Act, P.L. 110-343, Div. C, Title VII, Subtitle A, §702(a)(2) (extending certain benefits included in

KETRA to the Midwestern disaster area).

26 U.S.C. §170(i).

KETRA, P.L. 109-73, Title III, §303; Heartland Act, P.L. 110-343, Div. C, Title VII, Subtitle A, §702(e)(2).

IRS News Release IR 2011-116 (December 9, 2011).

IRS News Release IR 2012-95 (November 21, 2012).

KETRA, P.L. 109-73, Title III, §304; Heartland Act, P.L. 110-343, Div. C, Title VII, Subtitle A, §702(e)(3).

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Leasehold Improvements

For purposes of depreciation, the Job Creation Act generally shortened the recovery period for

leasehold improvement property to five years for qualifying property located in the New York

disaster zone.76

Credit Computations

KETRA, the GO Zone Act, and the Heartland Act permitted qualifying disaster victims to elect to

use their earned income from the year prior to the disaster for computing the child tax credit and

the earned income tax credit instead of the income from the year of the disaster.77 This may have

benefited taxpayers whose income was reduced in the year of the disaster. In general, taxpayers

qualified only if the disaster caused them to be displaced from their principal place of abode.

Treasury Authority to Make Adjustments Relating to Status

KETRA, the GO Zone Act, and the Heartland Act all contained similar provisions that authorized

the Treasury Secretary to make adjustments in the application of the tax laws for the tax years of

the disaster and the immediate subsequent year so that temporary relocations due to the disaster

did not cause taxpayers to lose any deduction or credit or to experience a change of filing status.78

Education Credits

Individuals with eligible tuition and related expenses may claim the Hope Scholarship or Lifetime

Learning credit.79 Under the law existing when KETRA, the GO Zone Act, and the Heartland Act

were enacted, the Hope credit was 100% of the first $1,000 of eligible expenses plus 50% of the

next $1,000 of eligible expenses, both adjusted for inflation. The maximum Lifetime Learning

credit is and was 20% of up to $10,000 of eligible expenses. Beginning in 2009, the partially

refundable American Opportunity Tax Credit (AOTC)80 temporarily increased the Hope credit,

allowing 100% of eligible expenses up to $2,000 plus 25% of the next $2,000 of eligible

expenses.81 Currently, 2012 is the last year in which taxpayers can claim the AOTC.

For individuals attending school in the GO Zone for 2005 and 2006, the GO Zone Act allowed

certain non-tuition expenses (e.g., books, equipment, and room and board) to qualify for the Hope

and Lifetime Learning credits; doubled the $1,000 limitations in the Hope credit to $2,000; and

Job Creation Act, P.L. 107-147, Title III, §301(a) (codified at 26 U.S.C. §1400L(c)).

KETRA, P.L. 109-73, Title IV, §406; GO Zone Act, P.L. 109-135, Title II, §201(a) (codified at 26 U.S.C.

§1400S(d)); P.L. 110-343, Div. C, Title VII, Subtitle A, §702(d). The credits are found in IRC §§24 and 32. For

discussion of them, see CRS Report R41873, The Child Tax Credit: Current Law and Legislative History, by (name reda

cted); CRS Report RL31768,

The Earned Income Tax Credit (EITC): An Overview, by (name redacted).

KETRA, P.L. 109-73, Title IV, §407; GO Zone Act, P.L. 109-135, §201(a) (codified at 26 U.S.C. §1400S(e)).

26 U.S.C. §25A. For information, see CRS Report R41967, Higher Education Tax Benefits: Brief Overview and

Budgetary Effects, by (name redacted).

For information on the AOTC, see CRS Report R42561, The American Opportunity Tax Credit: Overview, Analysis,

and Policy Options, by (name redacted).

26 U.S.C. §25A(i)(1).

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increased the 20% limitation in the Lifetime Learning credit to 40%.82 The Heartland Act

provided similar rules for students attending school in a Midwestern disaster area during 2008 or

2009.83 However, to take advantage of this provision for 2009, taxpayers were required to waive

application of the AOTC provisions.84

Low-Income Housing Tax Credit

The low-income housing tax credit allows owners of qualified residential rental property to claim

a credit over a 10-year period that is based on the costs of constructing, rehabilitating, or

acquiring the building attributable to low-income units.85 Owners may claim a credit based on

130% of the project’s costs if the housing is in a low-income or difficult development area.

Owners must be allocated the credit by a state. Each state is limited in the amount of credits it

may allocate to the greater of $2,000,000 or $1.75 times the state’s population (both are adjusted

for inflation and are $2,525,000 and $2.20 for 2012),86 with adjustments.

The GO Zone Act temporarily increased the credits available to Alabama, Louisiana, and

Mississippi for use in the GO Zone by up to $18.00 multiplied by the state’s population that was

located in the GO Zone prior to the date of Hurricane Katrina.87 It also temporarily treated the

disaster zones as difficult development areas and used an alternate test for determining whether

certain GO Zone projects qualified as low-income housing.88 The Heartland Act permitted

affected states to allocate additional amounts for use in the disaster area of up to $8.00 multiplied

by the state’s disaster area population.89

Rehabilitation Credit

Taxpayers may claim a credit equal to 10% of the qualifying expenditures to rehabilitate a

qualified building or 20% of such expenditures for a certified historic structure.90

Both the GO Zone Act and the Heartland Act temporarily increased these percentages to 13% and

26% for rehabilitating qualifying buildings and structures damaged by the applicable disasters.91

GO Zone Act, P.L. 109-135, Title I, §102 (codified at 26 U.S.C. §1400O).

Heartland Act, P.L. 110-343, Div. C, Title VII, Subtitle A, §702(d)(8).

26 U.S.C. §25A(i)(7).

26 U.S.C. §42. For more information, see CRS Report RL33904, The Low-Income Housing Tax Credit: A

Framework for Evaluation, by (name redacted).

Rev. Proc. 2011-52, 2011-2 C.B. 701. For 2013, the amounts will be increased to $2,590,000 and $2.25. Rev. Proc.

2012-41, 2012 IRB LEXIS 505 (October 18, 2012).

It also increased the credits available to Florida and Texas in 2006 by $3,500,000 for each state.

GO Zone Act, P.L. 109-135, Title I, §101(a) (codified at 26 U.S.C. §1400N(c)).

Heartland Act, P.L. 110-343, Div. C, Title VII, Subtitle A, §702(d)(2). The act also provided an additional allocation

for Texas and Louisiana, which had been affected by Hurricane Act, equal to $16.00 multiplied by the state’s

population located in the specified counties.

26 U.S.C. §47.

GO Zone Act, P.L. 109-135, Title I, §101(a) (codified at 26 U.S.C. §1400N(h)); Heartland Act, P.L. 110-343, Div.

C, Title VII, Subtitle A, §702(a)(1).

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New Markets Tax Credit

Under the new markets tax credit, taxpayers are allocated a credit for investments made in

qualified community development entities.92 The credit is claimed over a period of seven years

and equals the amount of the investment multiplied by a percentage: 5% for the first three years

and 6% for the next four years. The credit was capped at $2 billion for 2005 and $3.5 billion for

2006 and 2007. The most recent year for which it was allocated was 2011, when it was capped at

$3.5 million. There is no allocation for 2012.

The GO Zone Act increased the cap by $300 million for 2005 and 2006 and by $400 million for

2007, and it allocated these amounts to entities making low-income community investments in

the GO Zone.93

Small Timber Producers

Under IRC Section 194, taxpayers may expense up to $10,000 of qualifying reforestation

expenditures. Under IRC Section 172, the general rule is that taxpayers may carry net operating

losses back for two years.

The GO Zone Act created two special rules for timber producers with less than 501 acres of

timber property: it (1) increased the Section 194 limit by up to $10,000 for expenditures made for

qualified timber property in the applicable disaster zones; and (2) increased the Section 172 carry

back period to five years for certain losses attributable to timber property in those zones.94

Public Utility Losses

Under IRC Section 172, certain net operating losses, called specified liability losses, may be

carried back for 10 years. Under IRC Section 165(i), certain disaster losses may be deducted in

the year prior to the disaster.

The GO Zone Act treated public utility casualty losses as a Section 172 loss.95 The GO Zone Act

and the 2008 Farm Bill allowed public utility disaster losses to be deducted in the fifth taxable

year preceding the disaster.96

26 U.S.C. §45D.

GO Zone Act, P.L. 109-135, Title I, §101(a) (codified at 26 U.S.C. §1400N(m)).

GO Zone Act, P.L. 109-135, Title I, §101(a) (codified at 26 U.S.C. §1400N(i)).

GO Zone Act, P.L. 109-135, Title I, §101(a) (codified at 26 U.S.C. §1400N(j)).

GO Zone Act, P.L. 109-135, Title I, §101(a) (codified at 26 U.S.C. §1400N(o)); 2008 Farm Bill, P.L. 110-234, Title

XV, Subtitle C, Part III, §15345(a)(6).

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Appendix. Comparison Among Laws

Table A-1. Comparison of Temporary Provisions Contained in Prior Acts

(Note the provisions are not necessarily identical; see discussion in report)

Provision

(links to relevant part

in report)

Job Creation

and Worker

Assistance

Act of 2002

Katrina

Emergency

Tax Relief Act

of 2005

Terrorist

attacks of

9/11/2011

Casualty Losses

Expensing

GO Zone

Act of 2005

Food,

Conservation,

and Energy

Act of 2008

Heartland Disaster Tax Relief

Act of 2008 and other provisions

in P.L. 110-343

Hurricane

Katrina

Hurricanes

Katrina, Rita,

and Wilma

2007 Storms

in Kansas

2007 Midwest

storms

Disasters

between 20072009

Yes

Net Operating Losses

Bonus Depreciation

Yes

Mortgage Revenue

Bonds

Yes

Expensing of

Environmental

Remediation Costs

Charitable

Contributions of

Inventory

Yes

Yesa

Yes (but not

limited to those

disasters)a

Yes (but not

limited to

disasters)b

Yes

(but not limited

to disasters)b

Involuntary

Conversions

Yes

Discharge of

Indebtedness

Yes

Retirement Plan

Distributions

Yes

Work Opportunity

Tax Credit

Yes

Retention Credit

Yes

Employer-Provided

Housing

Yes

Tax Credit Bonds

Yes

Gulf Coast Recovery

Bonds

Yes

Tax-Exempt Bonds

Yes

Limits on Charitable

Deductions

Yes

Housing Exemption

Yes

Mileage Rate and

Reimbursement

Yes

Congressional Research Service

Yes

Tax Provisions to Assist with Disaster Recovery

GO Zone

Act of 2005

Food,

Conservation,

and Energy

Act of 2008

Heartland Disaster Tax Relief

Act of 2008 and other provisions

in P.L. 110-343

Hurricane

Katrina

Hurricanes

Katrina, Rita,

and Wilma

2007 Storms

in Kansas

2007 Midwest

storms

Credit Computations

Yes

Treasury Authority to

Make Adjustments

Relating to Status

Yes

Education Credits

Yes

Low-Income Housing

Tax Credit

Yes

Rehabilitation Credit

Yes

New Markets Tax

Credit

Yes

Small Timber

Producers

Yes

Public Utility Losses

Yes

Provision

(links to relevant part

in report)

Leasehold

Improvements

Job Creation

and Worker

Assistance

Act of 2002

Katrina

Emergency

Tax Relief Act

of 2005

Terrorist

attacks of

9/11/2011

Disasters

between 20072009

Yes

(but limited to

representation

provision)

Yes

Source: Congressional Research Service

Notes:

The remediation expensing provision (IRC Section 198) is not limited to federally declared disasters or

specific disasters. It was temporary when enacted and was extended several times, but has now expired.

The Heartland Act was among those laws that extended Section198. Heartland Act, P.L. 110-343, Div. C,

Title III, §318. The GO Zone Act had also extended it, but only for those costs for contaminated sites in the

GO Zone, as well as treating petroleum products as a hazardous substance. GO Zone Act, P.L. 109-135,

Title I, §101(a) (codified at 26 U.S.C. §1400N(g)).

KETRA provided special rules regarding donations of food and book inventory, neither of which was limited

to donations related to the hurricane, but both of which were originally set to expire on December 31,

2005. The provisions have been extended several times since then, including by the Heartland Act (as part

of its tax extenders package, rather than its disaster relief provisions). Heartland Act, P.L. 110-343, Div. C,

Title III, §§323, 324. Most recently, both provisions were extended through December 31, 2011. P.L. 111312 (“Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010”), Subtitle C,

§§740(a), 741(a).

Congressional Research Service

Tax Provisions to Assist with Disaster Recovery

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Information Research Specialist

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Legislative Attorney

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