On November 18, 2005, the United States Senate adopted S. 2020, a $58 billion tax reconciliation package which includes significant tax relief for businesses, eg. energy companies,  involved in repairing and redeveloping the areas suffering from the devastation of Hurricanes Katrina, Wilma, and Rita.  The House of Representatives is expected to consider its tax reconciliation bill the week of December 5.  The House bill, H.R. 4297, does not contain hurricane relief measures.  However, on November 16, the House passed a separate bill, H.R. 4337, which would provide for Gulf tax credit bonds and for certain advance refundings and a federal guarantee for certain State bonds.  Hurricane relief tax provisions could be adopted later this month by conferees as part of the final tax reconciliation legislation, or this relief could be enacted as separate legislation. 

S. 2020 would establish a Gulf Opportunity Zone (GO Zone) in those areas of Alabama, Louisiana, and Mississippi that have been designated by the federal government as counties and parishes warranting individual or individual and public assistance by reason of Hurricane Katrina.  The bill also would extend certain forms of individual relief to victims of Hurricanes Wilma and Rita, including relaxed restrictions on mortgage revenue bonds, early withdrawals from retirement plans, and casualty loss deductions.

Businesses could 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.  Small business expensing limits would increase to $200,000 for qualifying expenditures made in the disaster area through 2007.

The bill would authorize issuance of qualified private activity bonds by Alabama, Louisiana, or Mississippi or any of their political subdivisions in excess of current limits.  Bond interest on these GO Zone bonds would not be subject to the alternative minimum tax.

An additional advance refunding would be permitted prior to January 1, 2007, for certain governmental bonds issued by Alabama, Louisiana, or Mississippi, or any of their political subdivisions, and for certain 501(c)(3) bonds.

The allocation of low income housing tax credits would be increased, and certain restrictions on mortgage revenue bonds would be relaxed.

Net operating losses could be carried back five years for losses attributable to new investments and repairs, business casualty losses caused by Hurricane Katrina, and moving expenses and temporary housing expenses for employees working in areas damaged by Hurricane Katrina.

Casualty losses associated with public utility property could be carried back 10 years or treated as having occurred five years prior to the disaster, at the taxpayer’s election.

Taxpayers owning less than 500 acres of timber in the Katrina, Rita, and Wilma zones would have increased expensing of reforestation and five-year NOL carrybacks.

Fifty percent of otherwise capitalized costs of demolition and site cleanup would be deductible.

The bill would extend the deductibility of costs of cleaning up brownfields in the Katrina GO Zone for two years, and would allow expensing for the cleanup of petroleum products in the Katrina GO Zone.

All employers located in the Katrina GO Zone and in the Rita and Wilma disaster zones would be eligible for a 40 percent tax credit for certain wages paid to employees in 2005.

The bill would waive the 10 percent limit on the corporate charitable deduction for contributions to Hurricanes Wilma and Rita relief made prior to January 1, 2006.

In addition to a one-year extension of the New Markets Tax Credit, the bill would expand the credit to certain reconstruction in the area affected by Hurricane Katrina.

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