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A Summary of Provisions for Affected Individuals, Businesses, and Charitable Donors
When Hurricane Katrina hit the Gulf Coast with a vengeance in August 2005, Congress acted to provide tax relief for its victims with the Katrina Emergency Tax Relief Act of 2005. It passed both houses of Congress by a unanimous vote, and President Bush signed the act into law on September 23, 2005. The act provides special rules for use of retirement funds, employment relief, charitable-giving incentives, and additional tax relief provisions. In addition to providing relief to individuals and businesses, the act includes tax breaks for relief workers. section 501 of the act declared an emergency requirement so the need for balancing of revenues and expenditures is suspended. Advisors should familiriaze themselves with the act's provisions and make efforts to determine who can benefit from it.
Key Terms
The act defines the "Hurricane Katrina disaster area" as the area declared a major disaster area by the President before September 14, 2005. The "core disaster area" means that part of the Hurricane Katrina disaster area that warrants individual or public assistance from the federal government The IRS has designated 31 Louisiana parishes, 47 Mississippi counties, and 10 Alabama counties as part of the core disaster area. (see www.irs.gov.) In addition, 33 Louisiana parishes, 35 Mississippi counties, 12 Alabama counties, and 11 Florida counties make up the remainder of the Hurricane Katrina disaster area
Title I
Title I of the act provides special rules relating to the use of retirement funds for relief relating to Hurricane Katrina Section 101 allows an eligible individual to withdraw up to $100,000 (in the aggregate) from retirement plans [e.g., IRA, 401(k)] without paying the 10% early-withdrawal penalty. In addition, these funds are not subject to the usual 20% mandatory withholding on withdrawals. Eligible individuals may pay income tax on the withdrawn amounts ratably over a three-year period. Also, if the withdrawals are recontributed to the plan within three years, the amounts will be given rollover treatment. If the taxpayer has previously filed a tax return and declared the withdrawals as income, he may file an amended return to get a refund. Eligible individuals are those whose principal place of abode on August 28, 2005, was located in the...