On December 22, 2005, President Bush signed H.R. 4440, the Gulf Opportunity Zone Act of 2005, into law, Public Law 109-135.  This law began as the follow-up to the Katrina Emergency Tax Relief Act of 2005, Public Law 109-73, and turned into a much larger piece of legislation providing additional relief to areas in the Gulf region hit by Hurricanes Rita and Wilma. 

The Gulf Opportunity Zone Act creates a “Gulf Opportunity Zone” (“GO Zone”) comprised of those areas of Alabama, Louisiana, and Mississippi that have been designated by the federal government as counties and parishes warranting individual or public assistance by reason of Hurricane Katrina and extends benefits to those affected by Hurricanes Wilma and Rita. This law provides the following:

• Allows businesses to expense 50 percent of the cost of new equipment placed in service in the GO Zone in the first year, including certain commercial and residential real estate. 
• Nearly doubles small business expensing limits for qualifying expenditures made in the GO Zone through 2007.
• Authorizes the issuance of qualified private activity bonds by Alabama, Louisiana, Mississippi, or any of their political subdivisions in excess of current limits any time after December 22, 2005 and before January 1, 2011.  Bond interest on these GO Zone bonds would not be subject to the alternative minimum tax.
• Permits additional advance refundings after December 22, 2005 and prior to January 1, 2011, for certain governmental bonds issued by Alabama, Louisiana, Mississippi, or any of their political subdivisions, and for certain 501(c)(3) bonds that were outstanding on August 28, 2005.  The maximum amount of refunding bonds that may be issued under this law is $4.5 billion for Louisiana, $2.25 billion for Mississippi and $1.125 billion for Alabama.
• Increases the allocation of low income housing tax credits, and relaxes certain restrictions on mortgage revenue bonds.
• Net Operating Losses (“NOL”)
  • 5-year NOL carryback for losses attributable to new investments and repairs, business casualty losses, moving expenses and temporary housing expenses of employees paid by an employer and depreciation of GO Zone property in the GO Zone incurred after August 28, 2005 and before January 1, 2008.  
  • 10-year NOL carryback for casualty losses associated with public utility property.
  • 5-year NOL carryback and increased expensing of reforestation for taxpayers owning less than 500 acres of timber in the Katrina, Rita and Wilma zones.
• Permits a deduction for 50 percent of any qualified GO Zone capitalized costs of demolition and site cleanup for property held for use in a trade or business, for the production of income or as inventory, paid or incurred on or after August 28, 2005 and before January 1, 2008.
• Extends the deductibility of costs of cleaning up contaminated sites in the GO Zone for two years, and would allow expensing for the cleanup of petroleum products in the GO Zone.  Expenditures paid or incurred to abate the contamination on or after August 28, 2005 and before December 31, 2007 would be eligible.
• Creates eligibility to all employers located in the Katrina GO Zone on August 28, 2005, in the Rita GO Zone on September 23, 2005 and the Wilma GO Zone on October 23, 2005 for a 40 percent tax credit for certain wages (up to $6,000) paid to employees after these respective dates.
• Waives the 10 percent limit on the corporate charitable deduction for contributions to Hurricanes Wilma and Rita relief made on or after September 23, 2005.
• Allows an additional allocation of the new markets tax credit in an amount equal to $300 million for 2005 and 2006, and $400 million for 2007, to be allocated among qualified CDEs to make qualified low-income community investments within the GO Zone.

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