Thursday, September 15, 2005
[verbatim/Sept. 15, 2005] The Senate on Thursday, by unanimous consent, passed a sweeping tax relief package, co-sponsored by Senator Trent Lott of Mississippi, to provide tax relief to the victims of Hurricane Katrina. Lott, a senior member of the Senate Finance Committee, provided significant input on the bill's provisions, tailored to Mississippi-specific needs. In addition to Lott, the bill, authored by Senators Chuck Grassley of Iowa and Max Baucus of Montana, was co-sponsored by Senators Thad Cochran of Mississippi, Mary Landrieu of Louisiana, David Vitter of Louisiana, and Richard Shelby of Alabama.
"While we will soon pass longer-term incentives to ensure businesses on the Gulf Coast can rebuild, this package delivers immediate relief to Katrina's victims," Senator Lott said. "Its provisions encourage food donations and the employment of displaced individuals, and it allows people to dip into their rainy day funds, without penalty, to cover short-term costs."
The tax relief package contains 17 short-term tax provisions designed to encourage donations, employment of displaced workers and protection of Katrina victims from immediate IRS deadlines and penalties. It includes a $500 per person tax exemption to those who shelter persons displaced by the hurricane for at least 60 days.
"This bill will ensure that individuals and businesses who cannot access their tax records because of the hurricane will have until next February to file estimated taxes," Senator Lott added. "These important provisions, taken with the business incentives we will soon pass, are an initial step towards revitalizing the Gulf Coast."
The initiative is expected to save taxpayers about $5 billion during the initial five-year authorization. The bill must be conferenced with similar legislation being considered by the U.S. House of Representatives before it becomes law. Basic provisions of the tax relief package include:
1. Discharge of Indebtedness Related to Katrina. The proposal would provide an exemption for indebtedness discharged by commercial lenders when the forgiveness is in response to damage suffered from Hurricane Katrina. Those suffering losses as a result of the hurricane should not be required to pay tax on benevolent cancellation of debts.
2. Early Withdrawals from Retirement Plans. Present law discourages distributions from tax-preferred retirement plans with penalties and other limitations. The proposal would waive the 10% penalty tax for premature distributions from IRAs and qualified retirement plans (including defined benefit plans, 401(k) plans and 403(b) plans) for individuals whose principal residence is in a federally declared natural disaster zone.
3. Extension of WOTC to Katrina Victims. Under current law, the Work Opportunity Tax Credit allows employers to claim a credit against wages paid to new workers that face barriers to employment The proposal establishes an additional category of eligible new workers under the WOTC credit for Hurricane Katrina survivors, provided that the worker lived within the disaster zone and became unemployed as a result of damage or destruction to his or her workplace.
4. Katrina Disaster Employee Retention Credit. Current law allows employers to deduct the cost of salaries paid to employees. This proposal would provide a 40% tax credit for wages paid up to $6,000 if paid after August 28, 2005, and before December 31, 2005, by employers located in the disaster zone.
5. Incentive for Housing Aid. Current law provides a personal exemption for taxpayers, spouses, and dependents. The deduction amount for 2005 is $3,200. The proposal would provide taxpayers who house dislocated persons from Hurricane Katrina for a minimum of 60 days in their principal residences an additional personal exemption of $500 per dislocated person (maximum $2,000 deduction).
6. Relax Restrictions on Mortgage Revenue Bonds. Mortgage revenue bonds are tax-exempt bonds that state and local governments generally issue through housing finance agencies. The proceeds from the bonds are used to fund below market interest rate mortgages for certain first time homebuyers, meeting income and purchase price restrictions. The proposal would provide greater access to mortgage revenue bond proceeds by lifting the first time homeowner requirement and relaxing the purchase price and income limitations for homes in the area damaged by Katrina for the three years following the disaster.
7. Encourage Food Donations by Businesses. The proposal provides an enhanced deduction for donations of food inventory for businesses through December 31, 2005. The proposal would allow all taxpayers to claim an enhanced deduction for donations of food inventory. Senators want to encourage farmers, ranchers, food producers, and sellers to donate surplus food inventory during this period.
8. Encourage Book Donations by Businesses. The proposal provides an enhanced deduction for donations of book inventory through December 31, 2005. The proposal would allow taxpayers to claim an enhanced deduction for donations of book inventory. With the influx of many dislocated children, many schools lack the supplies needed to handle the additional student population.
9. IRA Charitable Rollover. The provision would exclude from gross income otherwise taxable Individual Retirement Account (IRA) withdrawals from a traditional or a Roth IRA for qualified charitable distributions. Removing obstacles for taxpayers to donate their IRAs to charity during this difficult period will provide an important incentive to give to charities. The provision would be effective through December 31, 2005.
10. Corporate Charitable Contributions. The amount allowed as a charitable deduction for a corporation in any taxable year may not exceed ten percent of the corporation's taxable income. The proposal would temporarily increase the percentage limitation to 15 percent of the corporation's taxable income for one taxable year ending on or before December 31, 2006.
11. Individual Income Limits for Cash Contributions. The bill raises the permitted cash contribution level for individuals from 50 to 60 percent of adjusted gross income for tax years ending on or before Dec. 31, 2005.
12. Encourage IRS Information Sharing with State Charity Officials. This proposal allows the IRS to disclose to appropriate state officials information regarding organizations for which the IRS has denied or revoked tax-exempt status or certain other actions the IRS may have taken. Senators want to ensure that the IRS and state officials are working closely together to combat fraudulent charitable organizations taking advantage of a generous public.
13. Taxpayer Assistance. To ensure families and businesses receive the full benefit of these proposed tax relief provisions, it is vital that the IRS be able to provide significant taxpayer assistance to those affected and to administer effectively the tax relief provisions proposed here. Some of these provisions encourage charitable giving, allow taxpayers to access retirement funds without penalty, and expand the availability of tax-exempt bonds for rebuilding homes. The IRS is expediting reviews of applications from new organizations seeking tax-exempt status as well as requests from donors seeking to verify an organization's tax-exempt status. This proposal dedicates all fees from employee plan and exempt organization letter rulings and determination letters to IRS for its own disaster recovery, tax relief administration and assistance and for administration of tax- exempt entities and charitable donations. Currently only a portion of these fees are dedicated for the IRS' use.
14. Increased Mileage Rate for Calculating Charitable Contribution Mileage Deduction. The mileage rate individuals may use to compute a tax deduction for personal vehicle expenses associated with charitable work is statutory and has not been increased since 1997. To encourage more charitable activity, this proposal sets the charitable mileage rate at 50 percent of the standard business mileage rate determined periodically by the IRS.
15. Casualty Loss Provision. Under present law, non-business casualty losses are deductible by taxpayers who itemize only to the extent they exceed ten percent of adjusted gross income and a $100 floor. In some circumstances, taxpayers are permitted to include a current-year casualty loss on an amended prior year return. The proposal eliminates the ten percent floor for casualty losses incurred in the Hurricane Katrina disaster area, including those claimed on amended returns. Removing the floor will result in increased loss deductions and the amended return option will get money to the victims much sooner, helping them to get back on their feet.
16. Section 1033(h) Involuntary Conversions. Present law allows taxpayers not to recognize gain with respect to homes damaged or destroyed as a result of a Presidentially declared disaster if the taxpayer replaces the property within a four-year period. Business property that is destroyed must be replaced within a two-year period to avoid gain recognition. The proposal extends the replacement period to five years for a taxpayer to purchase property to replace property that was damaged or destroyed within the Presidentially-declared disaster area for Katrina. The extended replacement period applies to principle residences and business property.
17. IRS Administrative Relief: The IRS issued a notice for victims of Katrina extending the time period until January 3, 2006 to file any returns, pay any taxes or make any deposits due. Although this is intended to apply to employment and excise taxes, it is unclear that the IRS has the authority to do so. This proposal extends the deadlines until February 28, 2006, and clarifies that the extension includes employment and excise taxes in addition to income, estate and gift taxes. Penalties and interest that would otherwise apply are waived.
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Here's the AP story, sans the Lott spin: Louisiana lawmakers outlined a detailed reconstruction plan for their devastated state today, including full coastal restoration and economic development incentives to brings jobs and people back to New Orleans. Dubbed "Project Pelican," the plan was developed by all nine Republicans and Democrats in the House-Senate delegation. There was no cost estimate attached to the proposal and it did not address the issue of whether the reconstruction should be managed by existing federal agencies or by a new entity. "That is a subject of a lot of discussion between many of us and the administration," said Sen. David Vitter, R-La. Sen. Mary Landrieu, D-La., said an overriding principle of the plan is that the reconstruction should be directed by Louisiana officials and carried out as much as possible by Louisiana businesses and workers. "While we want help from Washington and we respect advice and counsel from Washington," Landrieu said, "our message is please respect the wishes and views of local businesses, regional businesses, local elected officials and state officials as we do this together." The delegation released details of the proposal before President Bush presented his rebuilding plans in a televised address today night. Senate Republican leaders have urged Bush to commit to a "Marshall Plan" type redevelopment of the Gulf Coast, and some Democrats have called for creation of a new public-private reconstruction agency patterned after the Tennessee Valley Authority. Vitter said the delegation reconstruction plan is "very, very consistent" with those other proposals in that it envisions a major, long-term reconstruction and rehabilitation effort involving both the federal government and the private sector.