CRS Updates Report on Tax Relief Provisions for Disaster Victims

When natural or man-made disasters occur, there are several tax relief provisions that apply to affected taxpayers. This report focuses on permanent tax relief laws that are intended to benefit victims of both presidentially and nonpresidentially declared disasters such as hurricanes, floods, earthquakes, tornadoes, droughts, wildfires, wars, and terrorist attacks. The selected laws are summarized in table format and are arranged by different categories, including "losses," "gains exempted from income," and "postponements." For each law summarized, the table contains the corresponding Internal Revenue Code (IRC) section citation and a brief description of the provision. The descriptions are combinations of verbatim and summarized IRC text.

Several bills introduced in the 110th Congress propose to create permanent tax relief provisions for disaster victims. The Catastrophe Savings Account Act of 2007 (H.R. 1787 and S. 927) would provide for tax-exempt catastrophe savings accounts (CSAs) and would allow tax-free distributions from these accounts to pay expenses resulting from presidentially declared disasters. The Hurricane and Tornado Mitigation Investment Act of 2007 (S. 930 and H.R. 913) would allow individual and business taxpayers a tax credit for 25%of their qualified hurricane and tornado mitigation property expenditures up to $5,000 for any taxable year. The Fallen Heroes Tax Fairness Act of 2007 (H.R. 116) would extend the provisions exempting deceased members of the Armed Forces who die from wounds, disease, or injury incurred while serving in a combat zone to the last taxable year ending before such wounds, disease, or injury were incurred.

This report will be updated as warranted by legislative events.

 Contents

Some tax relief provisions are available only to victims of presidentially declared disasters. A presidentially declared disaster is defined in IRC Section 1033(h)(3) to mean "any disaster which, with respect to the area in which the property is located, resulted in a subsequent determination by the President that the area warrants assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act" (Stafford Act). Other tax relief provisions are more broadly available to disaster victims regardless of the event's presidential declaration status. Descriptions of the IRC sections in this report will indicate whether certain provisions are available only for victims of presidentially declared disasters.

In response to Hurricanes Katrina, Rita, and Wilma, Congress passed temporary enhancements to existing tax laws to provide extra tax relief to victims of these hurricanes. These modifications were part of the Katrina Emergency Tax Relief Act of 2005 (P.L. 109-73) and the Gulf Opportunity Zone Act of 2005 (P.L.109-135). Table notes indicate where the permanent laws described in this report were enhanced by either P.L. 109-73 or P.L. 109-135.¹

Several bills introduced in the 110th Congress propose to create permanent tax relief provisions for disaster victims. The Catastrophe Savings Account Act of 2007 (H.R. 1787 and S. 927) would provide for tax-exempt catastrophe savings accounts (CSAs) and would allow tax-free distributions from these accounts to pay expenses resulting from presidentially declared disasters. The Hurricane and Tornado Mitigation Investment Act of 2007 (S. 930 and H.R. 913) would allow individual and business taxpayers a tax credit for 25% of their qualified hurricane and tornado mitigation property expenditures up to $5,000 for any taxable year. The Fallen Heroes Tax Fairness Act of 2007 (H.R. 116) would extend the provisions exempting deceased members of the Armed Forces who die from wounds, disease, or injury incurred while serving in a combat zone to the last taxable year ending before such wounds, disease, or injury were incurred.

This report focuses solely on provisions for tax relief from disasters. It does not cover legislative actions that have created tax incentives to encourage redevelopment in disaster-affected areas, nor does it discuss tax incentives for charitable giving. Measures providing for direct funding to victims of disasters are also not included in this report.

 Losses

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