[Congressional Record Volume 151, Number 30 (Monday, March 14, 2005)]
[House]
[Pages H1388-H1394]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




    AMENDING INTERNAL REVENUE CODE OF 1986 PROVIDING FOR PROPER TAX 
           TREATMENT OF CERTAIN DISASTER MITIGATION PAYMENTS

  Mr. FOLEY. Mr. Speaker, I move to suspend the rules and pass the bill 
(H.R. 1134) to amend the Internal Revenue Code of 1986 to provide for 
the proper tax treatment of certain disaster mitigation payments.
  The Clerk read as follows:

[[Page H1389]]

                               H.R. 1134

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. PROPER TAX TREATMENT OF CERTAIN DISASTER 
                   MITIGATION PAYMENTS.

       (a) Qualified Disaster Mitigation Payments Excluded From 
     Gross Income.--
       (1) In general.--Section 139 of the Internal Revenue Code 
     of 1986 (relating to disaster relief payments) is amended by 
     adding at the end the following new subsections:
       ``(g) Qualified Disaster Mitigation Payments.--
       ``(1) In general.--Gross income shall not include any 
     amount received as a qualified disaster mitigation payment.
       ``(2) Qualified disaster mitigation payment defined.--For 
     purposes of this section, the term `qualified disaster 
     mitigation payment' means any amount which is paid pursuant 
     to the Robert T. Stafford Disaster Relief and Emergency 
     Assistance Act (as in effect on the date of the enactment of 
     this subsection) or the National Flood Insurance Act (as in 
     effect on such date) to or for the benefit of the owner of 
     any property for hazard mitigation with respect to such 
     property. Such term shall not include any amount received for 
     the sale or disposition of any property.
       ``(3) No increase in basis.--Notwithstanding any other 
     provision of this subtitle, no increase in the basis or 
     adjusted basis of any property shall result from any amount 
     excluded under this subsection with respect to such property.
       ``(h) Denial of Double Benefit.--Notwithstanding any other 
     provision of this subtitle, no deduction or credit shall be 
     allowed (to the person for whose benefit a qualified disaster 
     relief payment or qualified disaster mitigation payment is 
     made) for, or by reason of, any expenditure to the extent of 
     the amount excluded under this section with respect to such 
     expenditure.''.
       (2) Conforming amendments.--
       (A) Subsection (d) of section 139 of such Code is amended 
     by striking ``a qualified disaster relief payment'' and 
     inserting ``qualified disaster relief payments and qualified 
     disaster mitigation payments''.
       (B) Subsection (e) of section 139 of such Code is amended 
     by striking ``and (f)'' and inserting ``, (f), and (g)''.
       (b) Certain Dispositions of Property Under Hazard 
     Mitigation Programs Treated as Involuntary Conversions.--
     Section 1033 of such Code (relating to involuntary 
     conversions) is amended by redesignating subsection (k) as 
     subsection (l) and by inserting after subsection (j) the 
     following new subsection:
       ``(k) Sales or Exchanges Under Certain Hazard Mitigation 
     Programs.--For purposes of this subtitle, if property is sold 
     or otherwise transferred to the Federal Government, a State 
     or local government, or an Indian tribal government to 
     implement hazard mitigation under the Robert T. Stafford 
     Disaster Relief and Emergency Assistance Act (as in effect on 
     the date of the enactment of this subsection) or the National 
     Flood Insurance Act (as in effect on such date), such sale or 
     transfer shall be treated as an involuntary conversion to 
     which this section applies.''.
       (c) Effective Date.--
       (1) Qualified disaster mitigation payments.--The amendments 
     made by subsection (a) shall apply to amounts received after 
     the date of the enactment of this Act.
       (2) Dispositions of property under hazard mitigation 
     programs.--The amendments made by subsection (b) shall apply 
     to sales or other dispositions after the date of the 
     enactment of this Act.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from 
Florida (Mr. Foley) and the gentleman from Maryland (Mr. Cardin) each 
will control 20 minutes.
  The Chair recognizes the gentleman from Florida (Mr. Foley).


                             General Leave

  Mr. FOLEY. Mr. Speaker, I ask unanimous consent that all Members may 
have 5 legislative days within which to revise and extend their remarks 
and include extraneous material on the bill under consideration.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Florida?
  There was no objection.
  Mr. FOLEY. Mr. Speaker, I yield myself such time as I may consume.
  First, let me thank the gentleman from California (Mr. Thomas), 
chairman of the Committee on Ways and Means, for his consideration and 
expeditious handling of this bill in allowing us to bring it to the 
floor. I will include for the Record the statement of the gentleman 
from California (Chairman Thomas), but first let me read two paragraphs 
which crystallize the need for the debate.
  The gentleman from California states: ``Mr. Speaker, I strongly 
support H.R. 1134 which embodies the President's budget proposal to 
provide tax relief to those who will and who have accepted Federal 
Emergency Management Agency disaster mitigation grants. The bill is 
necessary to promote effective use of the mitigation grants. These 
mitigation grants alleviate the severity of the damage caused by 
unpredictable but anticipated natural disasters. These grants save 
taxpayer dollars by reducing future Federal disaster relief payments 
resulting from such disasters.''
  If I can read the last paragraph of the statement of the gentleman 
from California (Mr. Thomas): ``H.R. 1134 will cut taxes by $105 
million over the next decade. FEMA estimates that mitigation projects 
over the past several years have saved our Nation nearly $3 billion in 
disaster-related costs. Clearly, when one compares the price of H.R. 
1134 with what we might pay in future relief efforts, this bill is 
worth moving forward and passing into law.''
  Mr. Speaker, I rise personally in strong support of H.R. 1134. As a 
member of Florida who has experienced three hurricanes which made 
landfall in my district and a fourth which came through the panhandle, 
out across North Carolina, back into the Atlantic, and made its way 
back to my district, my congressional district in essence suffered four 
disasters this past year.
  I strongly support H.R. 1134 and ask and thank my colleagues on both 
sides of the aisle for their help and efforts in bringing this to 
fruition on the floor. It is a very simple bill. It simply says those 
taxpayers who receive help under FEMA's hazard mitigation grant program 
will not be penalized under the Tax Code for receiving that help. It 
exempts these grants from being considered income for tax purposes.
  The FEMA mitigation program has been around for 15 years. It has 
helped property owners who live in disaster-prone areas avoid future 
disaster damage through mitigation projects in conjunction with State 
and local government agencies. In its 15 years, it has helped more than 
2,500 properties and saved $2.9 billion in property losses. Never once 
have these grants been taxed, nor were they ever intended to be.
  But the IRS decided last summer that unfortunately nothing 
specifically in tax law allows the tax exemption, and it let people 
know these FEMA grants would be considered taxable unless Congress 
directed otherwise. Therein lies the urgency of our effort. That is why 
87 Members of the House have signed onto H.R. 1134; and that is why we 
are here today, to ensure that those who participate in mitigation 
projects are not punished for doing so.
  Mr. Speaker, these grants help save both property and lives from the 
wrath of tornadoes, hurricanes, floods, earthquake, and other 
disasters. They also help save the Federal Government money in the long 
run through emergency disaster spending. To penalize taxpayers for 
accepting help in mitigating future and costly property damage is 
simply penny wise but pound foolish. Fifteen years ago Congress 
authorized these programs, but unwittingly neglected to spell out that 
they are, indeed, tax exempt, like many, many other disaster grant 
programs. We are here today to correct that oversight.
  Mr. Speaker, I reserve the balance of my time.
  Mr. CARDIN. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, let me start by thanking the gentleman from Florida (Mr. 
Foley) for his leadership on this issue, for bringing forward this 
legislation. It certainly is a bill that will help those who have been 
victims of natural disasters and a bill of which I am a cosponsor and 
strong supporter.
  Thousands of Americans in all parts of our country have faced tragedy 
brought by natural disasters in the past year. Whether in the form of 
hurricanes in the Southeast, or torrential and resulting mudslides in 
the West, many Americans have had to deal with Mother Nature's forces 
and have faced the daunting task of reassembling their homes and lives 
in the aftermath.
  H.R. 1134 aims to offer some relief to Americans who, as a result of 
these unpredictable natural disasters, will suffer personal and 
property losses.
  FEMA helps those affected get through the difficult times following 
such disasters; but today, Congress is taking our own role, one step 
closer to helping these victims. I am proud to join my colleagues and 
84 additional bipartisan cosponsors of H.R. 1134, which will allow an 
exclusion from taxes for relief payments made to tax-paying

[[Page H1390]]

Americans for efforts taken to mitigate some of the possible effects of 
natural disasters.
  Mr. Speaker, this not only helps the victims because it gives them 
some relief from having the burden of paying the taxes on these funds; 
but it also encourages mitigation, which is by far the priority, to try 
to mitigate the future damages caused through unpredictable natural 
disasters.
  Americans can benefit from taking steps to prevent the extent of 
damage that could occur during these times of natural disaster, and we 
should encourage such steps being taken. Today we have the opportunity 
to vote on H.R. 1134 and offer some additional assistance to Americans 
at a time when many might need that help the most.
  I know this does not do everything for everyone, and we will 
certainly be hearing from my colleague from New York who has a valid 
point, but I urge my colleagues to take the step we have available 
today to help those receiving assistance through FEMA for mitigation 
funds so it becomes more of a reality to these victims. They have 
suffered enough. We can help through this legislation.
  Mr. Speaker, I reserve the balance of my time.

                              {time}  1515

  Mr. FOLEY. Mr. Speaker, I yield 2 minutes to the gentleman from Ohio 
(Mr. Portman), a member of the Committee on Ways and Means.
  Mr. PORTMAN. Mr. Speaker, I rise in strong support of the gentleman 
from Florida's legislation that would make clear that property owners 
who participate in hazard mitigation projects will not be taxed on the 
mitigation assistance. This legislation is very important because it 
reverses a June 2004 IRS ruling which determined that Federal FEMA 
hazard mitigation assistance represented taxable income to 
participating individuals and businesses.
  I want to commend the gentleman from Florida for his legislation and 
for his leadership on this. I want to thank the gentleman from 
California (Mr. Thomas) also for ensuring its expeditious consideration 
today on the floor. This legislation is very important to Ohio. Passage 
of it will encourage our disaster impacted communities and our citizens 
to seek out mitigation assistance and limit damage to property and to 
people.
  Mitigation is absolutely crucial to ongoing disaster recovery efforts 
in my State of Ohio which in the past 18 months has had seven Federal 
disasters. In most cases mitigation assistance is used to elevate the 
homes to a better level of protection or move families out of harm's 
way. It is often the only hope for repetitive loss disaster victims. 
The intent is to prevent those homes from suffering future losses, 
protect the people and reduce the rate of Federal disaster response and 
recovery cost increases. Many of the people who have taken advantage of 
such assistance are people living in lower valued property in the flood 
plain who could not afford to move on their own.
  In Ohio, the hazard mitigation grants through FEMA are administered 
by the Ohio Emergency Management Agency. Currently in southwestern Ohio 
there is one project in the district I represent, the village of 
Fairfax, and there is one right near my district in the city of 
Fairfield.
  Through community support, both of these mitigation projects are in 
the process of removing people from repeated flooding areas and making 
homes more resilient to flooding. A total of 46 participants in these 
two projects include many families who will likely not have to suffer 
severe impact to their homes the next time it should flood, and it will 
flood again. They also, very importantly, would be unlikely to need any 
other Federal or State disaster assistance. The total cost of these 
projects is about $4.5 million. Taxing this investment into these 
communities and the lives of these homeowners like those in Fairfax 
will discourage future participation. If the IRS rule is allowed to 
stand, these communities will be hesitant to participate in mitigation 
because of that liability.
  This IRS policy undermines our Nation's efforts to lower the costs of 
future disasters through mitigation. It also discourages individuals 
who are affected by repeated disasters from removing themselves from 
harm or taking action to prevent repeated damage loss and property 
loss, the very actions we are trying to encourage as the Federal 
Government. Today we have an opportunity to correct this disincentive.
  Mr. Speaker, I strongly support H.R. 1134 and I urge my colleagues to 
support it.
  Mr. CARDIN. Mr. Speaker, I am pleased to yield 6 minutes to the 
gentlewoman from New York (Mrs. Maloney).
  Mrs. MALONEY. Mr. Speaker, I thank the gentleman for yielding me this 
time and for his leadership. I am delighted to join my colleague from 
Florida (Mr. Foley) on the other side of the aisle in support of this 
legislation. The bill before the House does the right thing for the 
disaster victims of Florida and Louisiana, but it does wrong, truly 
wrong, for the New York victims of the September 11 terrorist attacks. 
I would like to appeal to my colleague on the other side of the aisle 
to join me in trying to reverse the unfair taxation on grants to the 
victims of 9/11, specifically the businesses, as we go forward.
  When thousands of lower Manhattan small businesses were on the brink 
of complete failure as a result of September 11 and the terrorist 
attack against our country, these businesses accepted Federal recovery 
grants but were then told months later that those grants would be taxed 
and treated as income. That, in my opinion, wrongful taxation was the 
straw that broke the back of many small businesses in New York after 9/
11 and it continues to this day to be a burden on small businesses who 
were forced to take out loans to pay taxes on disaster recovery grants. 
Granted it was not a FEMA mitigation grant but it was a disaster 
recovery grant, so it was in the same feeling or in the same purpose as 
the legislation before us.
  What causes me so much concern today, Mr. Speaker, is that we have 
sought the same treatment, the exact same treatment for 9/11 victims 
for more than 3 years that the Members are seeking today for victims in 
their States. Along with the gentleman from New York (Mr. Nadler) and 
the bipartisan delegation of New York, I have introduced legislation to 
reverse taxation on the 9/11 aid grants. We have offered amendments to 
reverse this taxation with the active support of the gentleman from New 
York (Mr. Rangel), Ways and Means members and others from the New York 
delegation. We have testified before the Committee on Rules, made 
numerous speeches before this body, sought hearings for the legislation 
and held countless events to seek action from House leaders to reverse 
this wrongful taxation on 9/11 aid grants. We have been trying for more 
than 3 years to have the small business victims of 9/11 treated fairly, 
but this body has not found a way as yet to advance that legislation. 
Again, I am appealing to my colleagues from Florida and Louisiana to 
help our constituents as they are helping theirs today.
  Now, today, we are watching a bill sail to the floor for passage, 
without a hearing, without a markup in committee, without any of the 
months and years of effort that the New York delegation and business 
leaders from New York City have put into seeking redress for 9/11 
disaster victims that were treated unfairly and wrongly.
  Let me be absolutely clear that I find no fault with the repeal of 
wrongful taxation on the recovery grants for Florida and Louisiana 
victims of disaster. I feel they are entitled. The purpose of disaster 
relief is to relieve them, to get that money back in the community, to 
help them restore and be made whole, not to tax it. But I do find fault 
with the exclusion of 9/11 victims in this bill when we have fought so 
long and so hard to achieve the exact same fairness for them. If the 
Federal Government should not collect taxes on aid to hurricane 
victims, then it should not collect taxes on 9/11 relief grants which 
is truly the worst disaster that this country has ever suffered. It is 
an act of war. We are still suffering from that terrible, terrible 
action against innocent people.
  I again want to make clear that I am supporting the legislation. I 
would like to place in the Record a report from the Joint Committee on 
Taxation where they estimated that approximately $268 million was sent 
back to Washington in the form of taxes on the

[[Page H1391]]

relief grants following 9/11. It is unfair to New York and to those who 
suffered the most from the terrorist attacks against our Nation.
  I call upon the authors of this legislation and the gentleman from 
Florida (Mr. Foley), whom I know has many friends in New York and has 
been a strong ally in working with the recovery of New York after 9/11, 
and I call upon the House leadership and appropriate committee chairmen 
to do the right thing for the 9/11 victims. I really implore my 
colleagues on the other side of the aisle to do the right and fair 
thing for the victims of 9/11 because of the wrongful taxation on their 
recovery grants and we call upon this body to treat them with the same 
attention and care that we are rightfully showing to the victims of 
disasters in other parts of our Nation today.
  Again, I support this legislation. Again, I appeal to my colleagues 
on the other side of the aisle to give the like, same fair treatment to 
the sufferers and the victims and the grants for 9/11.

                                    Congress of the United States,


                                  Joint Committee on Taxation,

                                    Washington, DC, June 17, 2003.
     Hon. Carolyn Maloney,
     House of Representatives,
     Washington, DC.
       Dear Ms. Maloney. This letter is in response to your 
     request of June 9, 2003, for a revenue estimate of a proposal 
     to exclude from gross income certain Federal funds granted as 
     a result of the terrorist events of September 11, 2001.
       In general, under present law, unless income is received 
     for ``general welfare'' or for compensation for losses that 
     are not otherwise compensated, grants from the Federal 
     government are included in income. To the extent not already 
     excluded under present law by the general welfare doctrine or 
     otherwise, your proposal would exclude from gross income 
     payments of certain Federal funds made as assistance on 
     account of property or business damaged by, and for economic 
     revitalization directly related to, the terrorist attacks on 
     the United States that occurred on September 11, 2001.
       Assuming that your proposal would be enacted on July 1, 
     2003, and effective for taxable years ending after September 
     11, 2001, we estimate that your proposal would have the 
     following effects on Federal fiscal year budget receipts:


        Fiscal years                                Millions of dollars
2003................................................................-24
2004...............................................................-135
2005................................................................-61
2006................................................................-30
2007................................................................-11
2008.................................................................-5
2009.................................................................-2
2010.................................................................--
2011.................................................................--
2012.................................................................--
2013.................................................................--
2003-08............................................................-266
2003-13............................................................-268
       I hope this information is helpful to you. If we can be of 
     further assistance in this matter, please let me know.
           Sincerely,
                                                    George K. Yin.

  Mr. FOLEY. Mr. Speaker, I yield 2 minutes to the gentleman from 
Oklahoma (Mr. Istook) who has been extraordinarily helpful in the 
promulgation of both this bill and, of course, working with the State 
of Oklahoma in creating safe rooms and other mitigation grant programs.
  Mr. ISTOOK. Mr. Speaker, I appreciate very much the assistance of the 
gentleman from Florida (Mr. Foley), the actions of the Committee on 
Ways and Means and the gentleman from California (Mr. Thomas), and I 
rise in support of this bill, H.R. 1134.
  My home State of Oklahoma in the last 15 years has received some $60 
million in mitigation grants to help people avoid potential injury from 
tornadoes through the construction of storm shelters and safe rooms. It 
is important that they not be told now that those are subject to 
taxation, when they are being told or had been told throughout this 
time that, no, this is not taxable, this is to protect you, because, 
after all, we know that although you can move out of the flood plain, 
you can move away from the coast, you can stay clear of an earthquake 
fault line but tornadoes hit everywhere and they have wind speeds of up 
to, in fact, in some cases over 300 miles an hour, twice as much as the 
wind speed you have in a hurricane. They occur in Oklahoma, but they 
also occur in Massachusetts. They occur in Wisconsin and Illinois and 
Missouri and Alabama and Ohio and Texas. You cannot mitigate in advance 
by moving someplace where you know that it cannot happen.
  It is important that we not improperly subject people now from the 
construction of these shelters to taxation on them. Thousands of them 
have been constructed in Oklahoma and I do not want them to be 
subjected to taxation. It is important that we understand that although 
this bill says, from henceforth these are not going to be taxable, it 
is my understanding that the Treasury Department says that this change 
in the tax law will give them the authority to go back and declare the 
prior grants not to be taxable, also. We are expecting that letter from 
the Treasury Department after the passage of this bill, and I look 
forward to that.
  I thank the gentleman from Florida for this legislation and I ask all 
of my colleagues to join with me in passing H.R. 1134.
  Mr. FOLEY. Mr. Speaker, I yield 2 minutes to the gentleman from 
Louisiana (Mr. Jindal), a new Member of Congress who has been a very 
active participant in helping us bring this legislation to the floor.
  Mr. JINDAL. Mr. Speaker, I want to applaud the gentleman from Florida 
(Mr. Foley), and I want to thank the gentleman from California (Mr. 
Thomas) for allowing us to debate this very important bill. I would 
certainly urge support from all my colleagues to correct an injustice. 
Certainly there are many families impacted in Louisiana by this new tax 
ruling from the IRS.
  I want to focus on two families in particular. To avoid repeating 
much of what has already been said, I want to focus on two families in 
particular that will be helped by the passage of H.R. 1134. First, I 
would turn your attention to the Guidry family. They live in Slidell, 
Louisiana. They are constituents of mine. They received $125,000 to 
mitigate flood damage and to protect them against future loss. A good 
thing, you might say, after their home was damaged in Hurricanes 
Isadore and Lili. Indeed, it was a good thing that our government 
stepped in to help them recover not only from this natural disaster but 
also to prevent future flood damage and to protect this family from 
future damage and also to protect the Federal Treasury. However, with 
this new ruling, this novel ruling from last year, this new ruling that 
their income tax would now have to increase, not only were they raised 
and put into a higher tax bracket but their son who is paraplegic and 
who attends college on a need-based Pell grant is now being faced with 
the prospect of losing his financial aid and having to drop out of 
school if we do not pass this bill. This same family, the Guidry 
family, is also facing the prospect of having to sell the home in order 
to pay the taxes for the grant they received to fix the home that they 
owned in the first place. Certainly this is not what this body intended 
when we provided assistance and recovery dollars to those that are 
impacted by natural disasters.
  A second example. Mike Perkins, also from Slidell, received a grant 
back in 2001 to raise his home again to prevent future floods and also 
to save our Treasury from future damage claims. He finished 
construction 3 years ago, thought this was a closed issue, has been 
living in this home for over 3 years since he repaired his home, raised 
the home, until he got a letter from his local government in January 
saying that now, after the fact, he would have to pay higher taxes.
  I am very pleased not only for the support from the gentleman from 
Florida (Mr. Foley) and from the gentleman from California (Mr. Thomas) 
but also from the Treasury Department. I am also anticipating a letter 
from the IRS indicating that they do not intend to go back in time and 
retroactively apply these higher taxes, these surprise taxes to people 
who received grants in previous years, adding insult to injury to those 
who are recovering from natural disasters.
  I urge my colleagues to support this bill.
  Mr. FOLEY. Mr. Speaker, it is my pleasure to yield 2 minutes to the 
gentleman from Washington (Mr. Reichert), a new Member and former 
sheriff of King County.
  Mr. REICHERT. Mr. Speaker, I rise today to speak on a bill that quite 
frankly is common sense. Thousands of Americans reach out to the 
Federal Emergency Management Agency in times of disaster. Their homes 
have been battered and decimated by earthquakes, volcanoes, tornadoes, 
floods and more. In these moments of despair, they look to the Federal 
Government

[[Page H1392]]

for help and we provide that help. Through FEMA, Americans are able to 
get back on their feet in financial situations where they normally 
would have no other resource. Emergency grants are just that, emergency 
funding, money to be spent in extreme circumstances, to get a roof back 
on a family's home, to put a missing wall back on a community resource 
center, to coordinate local outreach for first responders. These funds 
were never intended to be taxed.
  The gentleman from Florida seeks to relieve an unfair tax provision 
today, to make sure that in times of crisis we are not looking to take 
these emergency funds and treat them as regular income.

                              {time}  1530

  FEMA disaster grants are lifesaving funds, not added income. This 
bill is critical. I thank my colleague for introducing this important 
legislation and urge the House to pass it as soon as possible.
  Mr. FOLEY. Mr. Speaker, I yield 2 minutes to the gentleman from 
Pennsylvania (Mr. Fitzpatrick), a member of the Committee on Financial 
Services, another active participant in our efforts to get the bill on 
the floor today.
  Mr. FITZPATRICK of Pennsylvania. Mr. Speaker, I rise in support of 
H.R. 1134. The Federal Emergency Management Agency's flood mitigation 
program is one of the cornerstones of our country's disaster emergency 
management system. The flood mitigation program is the tangible 
manifestation of the Federal Government's ongoing effort to prevent 
damage and lessen the effect disasters have on persons' lives and 
property.
  Through FEMA's measures such as building safely within the 
floodplains, buying endangered houses, relocating homes, designing and 
reengineering buildings and infrastructures, and elevating houses and 
businesses, the effect of floods, hurricanes, and other natural hazards 
on American lives and communities is lessened.
  I congratulate the gentleman from Florida (Mr. Foley), whose Florida 
congressional district, like my district, has been ravaged by 
hurricanes and flooding, for sponsoring H.R. 1134. I also commend all 
of the House Members who have co-sponsored this bill and who have 
helped bring it to the floor today.
  Mr. Speaker, H.R. 1134 is necessary legislation. It will amend the 
Internal Revenue Code so as to provide for the proper tax treatment of 
disaster mitigation payments. Currently, the IRS has taken a position 
that such disaster relief payments will be treated as taxable. In a 
heavy-handed fashion the IRS's fashion truly kicks people while they 
are down.
  But H.R. 1134 does more. It not only provides tax relief to 
individuals who have suffered, often losing their homes and businesses 
from floods; it will encourage Americans to participate in FEMA's flood 
mitigation program.
  Mr. Speaker, I know firsthand the necessity of H.R. 1134. In 1999 
when hurricanes hit, I was a county commissioner in Bucks County, 
Pennsylvania. The rains and the flooding were devastating. The flooding 
along the Neshaminy Creek wiped out over 300 homes and over 100 
businesses. I was on the ground dealing with FEMA and with other 
disaster agencies. We were there. We dealt with the individuals and the 
families. We encouraged the citizens to participate in these Federal 
programs that will reduce Federal programs and funding requirements in 
the future. The Federal Government assured my constituents, Mr. 
Speaker, that those proceeds would not be taxable.
  So this is the right bill at the right time, and I urge the passage 
of H.R. 1134.
  Mr. CARDIN. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, let me once again urge my colleagues to support this 
legislation. I was listening to my colleagues speak, and there is not a 
region in this country, there is not a State in this country that has 
been subjected to natural disasters. In my own State Hurricane Isabel 
left an indelible mark upon the people of Maryland, and I saw firsthand 
the people who suffered as a result of that natural disaster and the 
need to do mitigation and FEMA-providing resources in order to assist 
us to take action to prevent this type of devastation in the future. 
This bill will help in dealing with those types of circumstances.
  And once again I want to congratulate the gentleman from Florida (Mr. 
Foley) for bringing this forward. This is strongly supported on both 
sides of the aisle, and we urge our colleagues to support the 
legislation.
  Mr. Speaker, I yield back the balance of my time.
  Mr. FOLEY. Mr. Speaker, I yield myself such time as I may consume.
  Let me again personally thank the gentleman from Maryland (Mr. 
Cardin) for both his co-sponsorship and his helping us in bringing this 
bill to the floor today. I want to thank the gentlewoman from New York 
(Mrs. Maloney) in her considered comments. I want to thank the 
gentleman from Ohio (Mr. Portman); the gentleman from Louisiana (Mr. 
Jindal); the gentleman from Washington State (Mr. Reichert); the 
gentleman from Pennsylvania (Mr. Fitzpatrick) for their comments; and 
of course the gentleman from Oklahoma (Mr. Istook), who has worked with 
me side by side on this measure, bringing it to the floor today.
  I think we have heard from all of the speakers the reasons for this 
important legislation; so I thank my colleagues for taking an active 
participating interest in this legislation. I thank the 87 co-sponsors 
who joined with us in urging the leadership to bring this measure to 
the floor. Again, thanks to the gentleman from Texas (Mr. DeLay) for 
allowing the bill to be scheduled for consideration; and of course the 
gentleman from California (Mr. Thomas), the chairman of the Committee 
on Ways and Means, without whose guidance and help this bill would not 
be possible.
  We know it is important. We believe it helps mitigate against future 
losses. The record is clear how much we save as a government by 
providing these mitigation grants that never were intended for taxable 
treatment. This bill makes that record clear. I underscore and 
underline the gentleman from Oklahoma's (Mr. Istook) comments 
concerning reactivity. We believe once this bill is passed into law and 
signed by the President that those prior acts of governments working 
together to mitigate disasters will not be taxable items. That should 
be coming from the Treasury to instruct the IRS relative to that 
procedure.
  Mr. Speaker, I want to also thank my staff, Liz Nicolson. I want to 
thank the Members of the Ways and Means staff: Bob Winters, Chris 
Giosa, Shahira Knight, Allison Giles; and of course my colleagues on 
the Senate side, Senators Bond and Landrieu, for their efforts in 
bringing this bill to the Senate.
  Mr. DAVIS of Florida. Mr. Speaker, today I rise before this House as 
a proud Floridian. Over this past year the people if my home State have 
demonstrated an amazing amount of tenacity and the ability to help each 
other in their great time of need. Yes, it has been quite a few months 
since the Hurricane season of 2004 ravaged us, but the sight of blue 
tarps replacing roofs on homes and piles of debris are still all too 
rampant--and in only 12 weeks the Hurricane season of 2005 will be upon 
us. I am pleased to stand before this chamber in support of Congressman 
Foley's effort to ease the pain for those who were affected by the 
tragic events of this last hurricane season.
  Sadly, the reality of these kinds of natural disasters is that many 
businesses never reopen and unemployment remains high long after the 
storms have gone. The Florida tourism industry is still very bruised 
because of canceled seasons and slower recovery times in certain areas 
of the State. By exempting hazard mitigation grants from being 
considered personal income for tax purposes, we are easing the path to 
recovery for a large number of Floridians.
  While this legislation won't remove all of the obstacles that these 
storms have put in our way, it certainty will be a useful tool in the 
effort to fully recover.
  Ms. ESHOO. Mr. Speaker, I'm pleased to rise today in support of H.R. 
1134, a bill to exempt FEMA's mitigation grants from federal income 
taxes, as was Congress's original intent. I commend my colleagues for 
their swift, bipartisan action in addressing this issue.
  These mitigation grants were created to give citizens a proactive way 
to prepare for future disasters, thereby minimizing the damage they 
cause. These grants have proved to be extremely successful, saving 
millions of dollars in post-disaster funding as well as lives lost to 
natural disasters. Despite this success, the IRS ruled in June of 2004, 
that these grants

[[Page H1393]]

should be included in grant recipients' gross income and be subject to 
federal income taxes. Taxing this assistance effectively removes the 
incentive for citizens to participate.
  Not only was this decision contrary to the intent of these grant 
programs, but the delay in notifying affected taxpayers has caused 
considerable alarm. I met personally with IRS Commissioner Everson to 
urge him to provide temporary relief while Congress worked toward a 
legislative solution, but without a reversal of the IRS ruling, it is 
essential that the House pass this bill today.
  In Felton Grove, one of the affected areas of my Congressional 
District, there are 30 families, many of them low-income, who are 
facing an enormous and unexpected tax burden this year. Many of these 
constituents earn between $30,000 and $40,000 a year. With grant 
averages from $40,000 to $160,000, if this determination is allowed to 
stand, some of my constituents' annual gross incomes will grow from 
$40,000 to $200,000. For these unfortunate constituents, nearly all of 
their annual income will have to be paid to the IRS, and many will face 
financial ruin.
  Mr. Speaker, on behalf of my constituents who are living in fear of 
the upcoming April 15th tax filing deadline, I urge my colleagues in 
the House to vote for this legislation so that it can become law.
  Mr. BOUSTANY. Mr. Speaker, I rise today in support of H.R. 1134, 
which will amend the tax code to remove disaster mitigation payments 
from consideration as gross income. I would like to thank my colleague, 
Mr. Foley of Florida, and my colleague, Mr. Jindal, for their 
leadership on this issue and introducing the legislation we consider 
here today.
  The Seventh Congressional District of Louisiana provides an 
unsurpassed location for agriculture, energy, and petrochemical 
production. However with these benefits, which our Nation depends 
heavily upon, come risks because of its vulnerability to natural 
disasters including floods, tornadoes, and hurricanes. In 2002, 
Hurricane Lili made landfall just south of Abbeville, Louisiana. She 
caused over $850 million in damage and temporarily halted all oil and 
gas production in the Gulf of Mexico. The hard-working men and women of 
southwest Louisiana will continue to take risks for good of this 
country, and it is only fair to remove the tax burden suffered because 
of improvements made to their property which allow them to remain and 
prosper in this sometimes dangerous region.
  Many homeowners who would like to participate in the grant and need 
to remove their homes from danger cannot currently afford to 
participate in the grants, and are either faced with increased flood 
insurance premiums or losing their homes. The current average cost to 
either elevate a slab structure or a second story conversion (all 
living area is moved to a new second story and first floor is gutted) 
is over $100,000 for a modest size home in Louisiana. Many of these 
projects approach $200,000. For the average homeowner to suddenly have 
to declare an additional $100,000--$200,000 as personal income will 
devastate most families. Tax liability should not discourage these 
people from accepting disaster mitigation payments intended to reduce 
injuries, loss of life, and damage and destruction of property.
  America depends on resources and services that are provided by the 
people of southwest Louisiana. The men and women I represent must 
remain in harm's way to deliver for others. It is for this reason that 
I support H.R. 1134 which offers tax relief to those families needing 
disaster mitigation payments.
  Ms. JACKSON-LEE of Texas. Mr. Speaker, I rise today as a supporter of 
H.R. 1134 which would amend the Internal Revenue Code of 1986 to 
provide for the proper tax treatment of certain disaster mitigation 
payments. This legislation is vital to all Americans who live in areas 
that are more likely to encounter natural disasters. This legislation 
ensures that grants given to disaster victims to avoid future disaster 
damage will not be taxed on those grants.
  FEMA has helped disaster victims avoid future disaster damage through 
a hazard mitigation program that has existed for about 15 years, helped 
more than 2,500 properties and saved $2.9 billion in property losses. 
These disaster prevention grants have never before been taxed nor were 
they ever intended to be. However, the IRS decided last summer that 
nothing in tax law specifically prevented taxation, and felt obliged to 
let people know they would be considered taxable unless Congress 
directed otherwise. Thankfully, this legislation alleviates the 
possible tax burden on those who accept these disaster prevention 
grants. Considering that these grants tend to number in the thousands 
of dollars, it is clear that the tax burden on these grants would be 
too much for the average individual to bear. H.R. 1134 allows 
individuals to accept these vital disaster prevention grants without 
fear of possible tax implications and that is quite clearly how the 
program is supposed to work.
  H.R. 1134 will also be of great help to my constituents in the 18th 
Congressional District of Texas. Houston due to its location and 
geography has always been particularly vulnerable to flooding. In 1900 
a major hurricane destroyed much of Galveston Island, killing more than 
6,000 people. An elevated barrier, the Sea Wall, was later constructed 
to hold back future storm surge and flood waters, allowing the city to 
thrive. This is a clear example of how projects for disaster prevention 
can be tremendously successful in alleviating future damage. Houston 
was again devastated in 2001 when Tropical Storm Allison displaced 
thousands of Houstonians and left $5 billion in damage in the wake of 
its flood waters. I am thankful that the FEMA grants that were given to 
individuals after that natural disaster were not taxed, otherwise many 
individuals would have to reject these grants out of fear of an 
overwhelming tax burden. This legislation makes certain that no victim 
of a natural disaster has to choose between accepting federal disaster 
assistance or contemplating its tax implications.
  Mr. THOMAS. Mr. Speaker, I strongly support H.R. 1134, which embodies 
the President's budget proposal to provide tax relief to those who will 
and who have accepted Federal Emergency Management Agency (FEMA) 
disaster mitigation grants.
  The bill is necessary to promote effective use of the mitigation 
grants. These mitigation grants alleviate the severity of the damage 
caused by unpredictable but anticipated natural disasters. These grants 
save taxpayer dollars by reducing future Federal disaster relief 
payments resulting from such disasters.
  Present law allows an income exclusion for amounts received by 
individuals as qualified disaster relief payments. This exclusion was 
enacted by Congress as a response to the disasters that occurred on 
September 11, 2001. This existing statutory exclusion applies only to 
amounts received by individuals as a result of a disaster that has 
actually occurred; thus, mitigation grants do not qualify. Given that 
an exclusion applies to payments made to victims after a qualified 
disaster, it is consistent to allow an exclusion for payments made to 
mitigate future disaster damage.
  Prior to the award of any mitigation grant, a cost-benefit analysis 
is required to ensure that the cost of funding the project is less than 
the damages expected to be incurred in the event of an actual disaster 
(absent the mitigation). FEMA mitigation grants are only awarded if 
projects are determined to be cost effective. Because mitigation is 
more cost effective for the Federal government than repair after the 
occurrence of a disaster, the FEMA mitigation programs are intended to 
translate into net benefits for the government. So, unlike grants which 
have been made available as income replacements and would be considered 
taxable income as a result, accepting these funds means taxpayers will 
face fewer claims for disaster aid later on. FEMA mitigation grants 
help people avoid the loss of life and property due to natural 
disasters. Mitigation programs reduce the number of cases where 
taxpayers would pay for meaningful disaster relief. We want to 
encourage people to take advantage of these life-saving and cost-saving 
programs.
  But recent IRS pronouncements that disaster mitigation grants are 
taxable income are discouraging people who live in flood-prone areas 
and elsewhere from accepting assistance needed to reduce the loss of 
life and property in future disasters. Some participants may not have 
the cash necessary to pay the tax imposed on the benefits provided by 
the mitigation grants. For people in potential disaster areas, the 
threat of immediate tax on something they have received in kind may be 
enough to keep them from accepting the help.
  H.R. 1134 is relatively simple. If FEMA funds are used to improve a 
dwelling, for example, the funds (and what they pay for) would not be 
treated as income when the improvements are made, but the owner would 
also not be able to get a double benefit by adding the value of the 
improvements to the cost basis of his property. In some cases, FEMA 
actually funds buyouts of owners in dangerous areas. Here, H.R. 1134 
gives the owner a choice: they can take the benefits which may be 
available under current law (for example, the exclusion of gains on a 
principal residence) or they can defer tax using involuntary conversion 
procedures.
  The bill includes several provisions to ensure that the exclusion is 
not overly broad. Not only does the bill provide that there is no 
increase in basis on account of amounts excludable under the bill, the 
bill also provides that no additional deduction or credit is allowed 
with respect to amounts excluded from income. Amounts received upon the 
sale of

[[Page H1394]]

property for purposes of hazard mitigation are afforded deferral of 
gain recognition, rather than an unlimited income exclusion.
  The exclusion under the bill applies to payments made to businesses 
because, unlike other grants that are not excludable because they are 
in the nature of income replacement, FEMA mitigation payments received 
by businesses are made to ultimately benefit the local community and 
Federal government.
  An income exclusion is appropriate for FEMA mitigation grants as such 
grants are distinctly different from other government grants. As 
mentioned, FEMA mitigation grants are only awarded if the projects are 
determined to be cost effective for the government. In addition, in the 
case of FEMA grants, if an exclusion is not allowed and individuals 
choose not to participate in the mitigation programs, the government 
may face increased spending, not only on behalf of one individual, but 
on behalf of entire communities in some cases. Finally, in the case of 
FEMA grants, present law imposes an illogical result in that mitigation 
grants are not excludable from income, but if mitigation grants are not 
accepted and a disaster subsequently occurs, payments made by the 
government to individual property owners could then be excluded from 
income.
  Generally, the proposal would have a prospective effective date. 
However, with respect to past mitigation payments where the statue of 
limitations has not expired, the President's proposal provides that the 
Treasury Department will have administrative authority to apply the 
policy proposed in the budget and embodied in H.R. 1134 to such cases. 
I strongly urge the Department of Treasury and the IRS to resolve 
existing cases in a manner consistent with this legislation so that 
taxpayers who have already undertaken mitigation will not bear the 
unexpected burden of extra tax liabilities.
  H.R. 1134 will cut taxes by $105 million over the next decade. FEMA 
estimates that mitigation projects over the past several years have 
saved our Nation nearly $3 billion in disaster-related costs. Clearly, 
when one compares the price of H.R. 1134 with what we might pay in 
future relief efforts, this bill is worth moving forward and passing 
into law.
  Mr. COLE of Oklahoma. Mr. Speaker, I rise today in support of H.R. 
1134. This important legislation prevents the IRS from taxing disaster 
mitigation grants provided by FEMA.
  This legislation is necessary and urgent due to the IRS's recent 
decision that Federal grant money used to build tornado shelters is 
taxable. Oklahomans who received the grants were not given any prior 
notice that money received would be taxable. Nor did Congress ever 
express the intent that such grants were to be taxable. The IRS simply 
conjured up this decision out of thin air.
  It makes no sense for the government to tax Federal money given to 
mitigate disasters. Disaster relief saves lives, limits damages and 
makes sense. Taxing the very grants that make this possible is not 
wise, and it is especially unfair given that this IRS decision will 
cost the taxpayers of Oklahoma $29 million over 5 years. These FEMA 
grants were given to thousands of Oklahomans with the average grant in 
the amount of $2,000. And, as I said earlier, the recipients were never 
advised that these grants would be taxable.
  No revenue has ever been collected from taxing FEMA grants. The IRS's 
decision is without precedent and reflects poorly on the career 
bureaucrats who devised this action. H.R. 1134 reverses this senseless 
bureaucratic decision and prohibits these grants from being taxed.
  I want to thank the gentleman from Florida, Mr. Foley, the gentleman 
from Louisiana, Mr. Jindal, the Oklahoma delegation and the Ways and 
Means Committee for making consideration of this legislation possible. 
I would urge Members to support passage of this legislation.
  Mr. FOLEY. Mr. Speaker, I yield back the balance of my time.
  The SPEAKER pro tempore (Mr. Petri). The question is on the motion 
offered by the gentleman from Florida (Mr. Foley) that the House 
suspend the rules and pass the bill, H.R. 1134.
  The question was taken; and (two-thirds having voted in favor 
thereof) the rules were suspended and the bill was passed.
  A motion to reconsider was laid on the table.

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