Tax benefits related to Hurricane Katrina disaster area

(a)

In general

Subchapter Y of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

1400M.

Tax benefits related to Hurricane Katrina disaster area

(a)

Zero percent capital gains rate

(1)

Exclusion

Gross income shall not include qualified capital gain from the sale or exchange of any Katrina Zone asset held for more than 5 years. (2)

Katrina Zone

For purposes of this subsection, the term Katrina Zone asset means— (A)any Katrina Zone business stock, (B)any Katrina Zone partnership interest, and (C)any Katrina Zone business property. (3)

Katrina Zone business stock

For purposes of this subsection— (A)

In general

The term Katrina Zone business stock means any stock in a domestic corporation which is originally issued after August 28, 2005, if— (i)such stock is acquired by the taxpayer, before January 1, 2007, at its original issue (directly or through an underwriter) solely in exchange for cash, (ii)as of the time such stock was issued, such corporation was a Katrina Zone business (or, in the case of a new corporation, such corporation was being organized for purposes of being a Katrina Zone business), and (iii)during substantially all of the taxpayer’s holding period for such stock, such corporation qualified as a Katrina Zone business. (B)

Redemptions

A rule similar to the rule of section 1202(c)(3) shall apply for purposes of this paragraph. (4)

Katrina Zone partnership interest

For purposes of this subsection, the term Katrina Zone partnership interest means any capital or profits interest in a domestic partnership which is originally issued after August 28, 2005, if— (A)such interest is acquired by the taxpayer, before January 1, 2007, from the partnership solely in exchange for cash, (B)as of the time such interest was acquired, such partnership was a Katrina Zone business (or, in the case of a new partnership, such partnership was being organized for purposes of being a Katrina Zone business), and (C)during substantially all of the taxpayer’s holding period for such interest, such partnership qualified as a Katrina Zone business.

A rule similar to the rule of subparagraph (B)(ii) shall apply for purposes of this paragraph.

(5)

Katrina Zone business property

For purposes of this subsection— (A)

In general

The term Katrina Zone business property means tangible property if— (i)such property was acquired by the taxpayer by purchase (as defined in section 179(d)(2)) after August 28, 2005, and before January 1, 2007, (ii)the original use of such property in the Katrina Zone commences with the taxpayer, and (iii)during substantially all of the taxpayer’s holding period for such property, substantially all of the use of such property was in a Katrina Zone business of the taxpayer. (B)

Special rule for buildings which are substantially improved

(i)

In general

The requirements of clauses (i) and (ii) of subparagraph (A) shall be treated as met with respect to— (I)property which is substantially improved by the taxpayer before January 1, 2007, and (II)any land on which such property is located. (ii)

Substantial improvement

For purposes of clause (i), property shall be treated as substantially improved by the taxpayer only if, during any 24-month period beginning after August 28, 2005, additions to basis with respect to such property in the hands of the taxpayer exceed the greater of— (I)an amount equal to the adjusted basis of such property at the beginning of such 24-month period in the hands of the taxpayer, or (II)$5,000. (6)

Katrina Zone business

For purposes of this subsection, the term Katrina Zone business means any corporation, partnership, or business which would be an enterprise zone business (as defined in section 1397C) if such section were applied by substituting Katrina Zone for empowerment zone each place it appears. (7)

Special rules related to Katrina Zone assets

For purposes of this subsection— (A)

Treatment of subsequent purchasers, etc

For purposes of this subsection, the term Katrina Zone asset includes any property which would be a Katrina Zone asset but for paragraph (3)(A)(i), (4)(A), or (5)(A)(i) or (ii) in the hands of the taxpayer if such property was a Katrina Zone asset in the hands of a prior holder. (B)

5-year safe harbor

If any property ceases to be a Katrina Zone asset by reason of paragraph (3)(A)(iii), (4)(C), or (5)(A)(iii) after the 5-year period beginning on the date the taxpayer acquired such property, such property shall continue to be treated as meeting the requirements of such paragraph; except that the amount of gain to which paragraph (1) applies on any sale or exchange of such property shall not exceed the amount which would be qualified capital gain had such property been sold on the date of such cessation. (8)

Qualified capital gain

For purposes of this subsection— (A)

In general

Except as otherwise provided in this paragraph, the term qualified capital gain means any gain recognized on the sale or exchange of— (i)a capital asset, or (ii)property used in the trade or business (as defined in section 1231(b). (B)

Gain before Hurricane or after 2011 not qualified

The term qualified capital gain shall not include any gain attributable to periods before August 29, 2005, or after December 31, 2011. (C)

Certain ordinary income gain not qualified

The term qualified capital gain shall not include any gain which would be treated as ordinary income under section 1245 or under section 1250 if section 1250 applied to all depreciation rather than the additional depreciation. (D)

Intangibles and land not integral part of Katrina Zone business

The term qualified capital gain shall not include any gain which is attributable to real property, or an intangible asset, which is not an integral part of a Katrina Zone business. (E)

Related party transactions

The term qualified capital gain shall not include any gain attributable, directly or indirectly, in whole or in part, to a transaction with a related person. For purposes of this subparagraph, persons are related to each other if such persons are described in section 267(b) or 707(b)(1). (9)

Certain other rules to apply

Rules similar to the rules of subsections (g), (h), (i)(2), and (j) of section 1202 shall apply for purposes of this subsection. (10)

Sales and exchanges of interests in partnerships and S corporations which are Katrina Zone businesses

In the case of the sale or exchange of an interest in a partnership, or of stock in an S corporation, which was a Katrina Zone business during substantially all of the period the taxpayer held such interest or stock, the amount of qualified capital gain shall be determined without regard to— (A)any gain which is attributable to real property, or an intangible asset, which is not an integral part of a Katrina Zone business, and (B)any gain attributable to periods before August 29, 2005, or after December 31, 2011. (b)

Estate tax reduction for Hurricane Katrina victims

(1)

In general

For purposes of this title, a Hurricane Katrina victim shall be treated as a qualified decedent within the meaning of section 2201(b). (2)

Hurricane Katrina victim

For purposes of this section, the term Hurricane Katrina victim means any decedent who dies after August 28, 2005, as a result of wounds or injuries incurred in the Katrina Zone as a result of Hurricane Katrina. (c)

Katrina Zone

For purposes of this section, the term Katrina Zone means an area determined by the President to warrant individual or individual and public assistance from the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act by reason of Hurricane Katrina.

(b)

Conforming amendments

(1)The heading for subchapter Y of chapter 1 of such Code is amended to read as follows:

Short-term regional benefits

(2)The table of sections for such subchapter is amended by adding at the end the following new item:

Sec. 1400M. Tax benefits related to Hurricane Katrina disaster area